The PBOC conducts a small net medium-term liquidity drain, suggesting a tightening bias
SHANGHAI, Jan. 15 (Reuters) – China’s central bank on Friday made a small net drain on medium-term loans from the banking system and kept the facility’s rates unchanged, a move according to investors that suggests a shift towards tightening of monetary policy.
The People’s Bank of China (PBOC) said in a statement that it injected 500 billion yuan ($ 77.28 billion) in one-year medium-term loans (MLF) to financial institutions and kept the loan rate at 2, 95% compared to previous operations.
This would mainly cover a 300 billion yuan batch of MLF due to expire on Friday and another batch of TMLF worth 240.5 billion yuan maturing on January 25, but would leave a net drain of 40.5 billion yuan. yuan.
The central bank said the MLF injection was aimed at “maintaining reasonably sufficient liquidity in the banking system,” and Friday’s operation was a refinancing covering the MLF and TMLF loans maturing in January.
However, several traders said the small net drain indicates that the central bank has started to fine-tune its monetary policy.
“500 billion yuan of injection of funds against 540.5 billion yuan of maturity … The action of the PBOC underscored the commitment to normalization,” said a trader of a foreign bank.
Expectations that the PBOC might prefer more modest liquidity fixes to more easing have grown stronger since recent high-level policy meetings indicating a reduction in central bank support to the economy this year.
The authorities have indicated that they want to avoid sudden policy changes and keep economic growth within a “reasonable range”.
Investors in Chinese money markets are reducing their bets on a reduction in bank reserve requirements ahead of the Lunar New Year holiday next month, reflecting belief that authorities will avoid strong easing signals amid an economic recovery.
Separately, the MLF’s stable rate should not indicate any change for the country’s Prime Lending Reference Rate (LPR) when it is set monthly next Wednesday.
The MLF, one of the main tools of the PBOC in managing longer-term liquidity in the banking system, serves as a guide for the LPR.
In the same statement online, the PBOC also said it injected an additional 2 billion yuan through seven-day reverse repurchases, with the rate unchanged.
($ 1 = 6.4703 Chinese yuan)
Reporting by Winni Zhou and Andrew Galbraith; Edited by Christian Schmollinger
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