Chinese Central Bank to Keep Liquidity on Even Keel After Lunar New Year

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The Chinese central bank said it would use medium-term lending facilities to help to keep liquidity levels in the banking system steady after the traditional Lunar New year.

On 13 February the People’s Bank of China announced that it would offer 393.0 billion yuan in medium-term lending facilities at a rate of 3.25%, in order to compensate for the impacts on banking sector liquidity on the first working day after the vacation of tax payments, the maturation of other MLF, the partial maturation of contingent reserve arrangements (CRA), and required reserve payments.

Figures from financial data provider Wind indicate that the 243.5 billion yuan in MLF originally scheduled to mature on 15 February will be delayed until after the Lunar New Year.

The market responded to PBOC’s move with a 0.02 basis point drop in the overnight weighted average rate for pledge-style repos to 2.5709%, and a modest 3.86 point uptick in the 7 day-weighted average to 2.8317%.

According to analysts while the lead up to the Lunar New Year in China is usually characterised by heightened demand for funds, liquidity has been abetted by the absence of maturing reverse repos this week, as well as the targeted reserve reductions and contingent reserve arrangements made by in advance by the Chinese monetary authorities.

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