The Chinese central bank has pumped 149 billion yuan (approx. $22 billion) into the banking system via medium-term lending facilities (MLF) as part of efforts to boost the availability of credit for actors in the real economy.
The People’s Bank of China (PBOC) used MLF to provide 149 billion yuan in one-year loans to Chinese banks at an interest rate of 3.3% on 24 August according to an official statement from the central bank.
90 billion yuan in reverse repos matured on the same date, for a net injection of 59 billion yuan.
According to analysts the use of one-year MLF’s as opposed to repos, which typically have a maturity of just seven to 21 days, indicates that PBOC wants to avoid the maturity mismatches created by banks borrowing short-term to engage in long-term funding, and help flatten the Chinese yield curve.
Expanding the availability of cash via MLF as opposed to reverse repos will will help to drive the purchase by banks of longer-term corporate and local government debt, particularly given recent reports that regulators plan to reduce or even cancel the risk weighting for regional special bonds.
“Continuing to increase medium- and long-term liquidity matches with local debt issuance,” wrote Ming Ming, chief fixed-income analyst at Citic Securities in Beijing.
“The central bank has take note of the negative impact on liquidity from the recent acceleration of special-purpose local bonds.”
The move comes as Beijing adopts measures such as accelerated issuance of local government special bonds to shore up growth, as unresolved trade tensions with the United States cast a pall over the Chinese economy.
While China has recently implemented a deleveraging campaign in tandem with a crackdown on the shadow banking sector, changes in external conditions have compelled PBOC to shift towards a “rationally ample” monetary policy setting, and the State Council to flag more active stimulus measures.
The China Banking and Insurance Regulatory Commission (CBIRC has also pushed for lenders to extend more credit to the “real economy,” with a heavy stress on financial inclusion and funding for small and micro-enterprises.