Central Bank Releases 2 Trillion Yuan in Provisional Liquidity Prior to Chinese New Year

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The People’s Bank of China announced the release of nearly 2 trillion yuan (approx. USD$316.28 billion) in temporary liquidity on Friday in order to meet heightened demand for cash in the lead up to the Chinese New Year, yet refrained from open market operations for a 12th consecutive trading day.

China’s central bank approved “provisional reserve fund drawing arrangements” (临时准备金动用安排) on the final trading day of 2017, for the purpose of shoring up liquidity during the cash tight new year vacation.

Under the arrangement national commercial banks that disburse large volumes of cash are allowed to make provisional use of no more than two percentage points of their statutory reserves for a term of 30 days, in order to compensate for the liquidity shortfall that arises during the Spring Festival Period.

According to PBOC’s official website commercial banks have been availing themselves of the contingent reserve allowance (CRA) since the middle of last month.

“After the Spring Festival, the maturity of the CRA will be in line with the pace of cash withdrawal and liquidity of the banking system will remain reasonably stable,” said the central bank.

While liquidity always tends to tighten in the run up to the Chinese New Year, both regulators and markets have become especially sensitive to cash scarcity amidst Beijing’s ongoing deleveraging campaign.

PBOC also announced on Firday that it had refrained from open market operations for the 12th consecutive trading session, due to “relatively high” liquidity levels in the banking system.

Maturing reverse repos have drained a total of 1.37 trillion yuan from the Chinese banking system across the 12 day absence, according to official PBOC data.

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