With Term Policy Loans China Central Bank To Pump More Cash

As per a Reuters survey, China’s Central Bank is anticipated to inject more cash in the case of rolling over maturing medium-term policy loans while also ensuring to keep the interest rate unchanged. The markets have already showcased their hope that the People’s Bank of China would inject more liquidity in the banking system after the conditions of money became unanticipatedly tight at the start of February and to also help in the economic recovery since the time Beijing exited its Zero-COVID policy in December last year.

In a 31-market watchers’ poll which was conducted in the third week of February, 81% of all participants or 25 to be precise, predicted that the central bank will invest new funds which will exceed the maturity by an average of 200-300 billion yuan. That said, the other sizable respondents had predicted an exact full rollover of 300 billion yuan in loans concerning the maturing medium-term lending facility.

It is well to be noted that all the participants anticipate the PBOC keeping the interest rate on the one-year MLF loans unchanged at 2.75%.

China rates strategist at one of the multi-national security companies, Mary Xia, opined that they think the strain of liquidity early this month could be connected to the fast-paced bank loan issuance and also the intense government bond offerings since February.

Besides, the negotiable certificate of deposit refinancing by banks is pretty significant this month. Xia anticipates that the PBOC will lend another 200 billion yuan on a net basis.

One of the rate strategists at a bank says that they expect the PBOC to be supportive of cash flow, which includes an outsized MLF rollover touching 400 billion yuan. New bank loans in China have already seen a jump hitting a record in January that is more than anticipated as the central bank initiated to explore a recovery path for the world’s second biggest economy post lifting of pandemic-controlled measures.

That said, the inflationary control measures have remained in place. Although headline inflation is expected to continue rising, they do not expect enough pressure so as to prevent further government loosening despite the fact that China is predicted to witness an economic recovery this year. January’s producer price inflation suggests there still happens to be a lot of surplus capacity within the economy that needs to be absorbed before the fears of inflation go on to become a major issue.