Central Bank Eases Monetary Conditions in China

SHANGHAI (Reuters) – China’s central bank supplied 14-day cash to its banking system for the first time in months on Monday, at a lower interest rate, signaling its intent to further ease monetary conditions.

The People’s Bank of China (PBOC) injected 234.6 billion yuan ($33.29 billion) into the banking system through open market operations, stating its goal was to “keep quarter-end liquidity adequate at a reasonable level in the banking system”.

The PBOC added 160.1 billion yuan via 7-day reverse repos at 1.70%. It also injected 74.5 billion yuan via 14-day reverse repos at 1.85%, compared to 1.95% during the previous injection.

Analysts indicated that while this funding operation is not a major policy easing, it reflects typical practice. China has used 14-day repos previously to support the banking system during long holidays, with the last injection occurring before a spring break in February.

This latest injection precedes China’s National Day holidays starting Oct.1, and the rate cut aligns the 14-day repo rate with the shorter 7-day repo rate, which was cut in July.

“I wouldn’t take this rate cut as a signal that PBOC loosened monetary policy further,” remarked Zhang Zhiwei, chief economist at Pinpoint Asset Management. “Nonetheless, I expect PBOC to cut the 7-day repo rate as well as the reserve requirement ratio in the coming months.”

The PBOC last adjusted its short and long-term benchmark lending rates in July. A press conference is scheduled for tomorrow where financial regulators will discuss their policy stance.

Amid deflationary pressures and slowing growth, China grapples with the challenge of stimulating domestic spending. Speculation of further monetary easing gained momentum last week following the U.S. Federal Reserve starting its easing cycle with a significant half-percentage point rate cut.

Chinese economic activity’s decline has led global brokerages to lower their 2024 growth forecasts below the government’s official target of about 5%. President Xi Jinping urged authorities to work towards achieving the country’s annual economic and social development goals, as reported by state media earlier this month.