(Writes with quotes from analysts)
SHANGHAI, Jan 16 (Reuters) – China’s central bank stepped up liquidity injections on Monday, offering more loans to some banks through its medium-term credit line, a move that comes ahead of the Lunar New Year, when businesses and households often seek more funding. .
The move also comes amid expectations that Chinese authorities will do more to stimulate the country’s COVID-ravaged economy. The central bank, however, kept the interest rate on loans unchanged for the fifth consecutive month.
The People’s Bank of China (PBOC) said it has offered loans worth 779 billion yuan ($116 billion) through its one-year medium-term credit facility (MLF) at an interest rate of 2.75 %.
With 700 billion yuan in MLF loans due to expire this month, the operation resulted in a net supply of fresh funds of 79 billion yuan.
The move was aimed at keeping liquidity in the banking system “reasonably ample” and fully meeting financial institutions’ demand for cash, the central bank said in an online statement.
In a survey of 25 market observers last week, the vast majority of participants expected the central bank to at least maintain current liquidity in the banking system through the operation.
China’s central bank has pledged to take more measures to boost market confidence and increase support for manufacturers and small businesses, Xuan Changneng, deputy governor of the PBOC, said on Friday, as hopes grew that the economy will experience a solid rebound this year.
The MLF rate is often taken as a guide for the LPR, which will be set monthly on Friday.
Frances Cheung, rate strategist at OCBC Bank, saw little clue in Monday’s trade on the LPR, adding that the LPR could fall by 5-10 basis points, especially over the five-year term given the government’s policy focus on the real estate sector.
The five-year LPR influences mortgage prices and the government has recently implemented a series of stimulus measures to help the struggling housing sector.
Barclays analysts said in a note to a client that they expect the government to step up support for fiscal policy and the PBOC to remain accommodative with further credit easing to stabilize credit growth. “We think a 10 basis point (bp) cut in policy rates in the first quarter cannot be ruled out given weak domestic demand amid waves of COVID,” they said.
Investors are also eagerly awaiting the release of China’s full-year gross domestic product (GDP) and other key economic indicators to be released on Tuesday.
Analysts polled by Reuters expect China’s economic growth is likely to grow just 2.8% in 2022 amid widespread lockdowns, well below the official target of around 5.5%. But they predicted a strong rebound in growth to 4.9% this year, before leveling off in 2024.
The central bank also injected 156 billion yuan in short-term liquidity on Monday, including 82 billion yuan of seven-day reverse repos and another 74 billion yuan through the 14-day term, the statement said.
($1 = 6,7010 yuan) (Reporting by Winni Zhou and Brenda Goh; Editing by Kim Coghill and Edwina Gibbs)