China Offers Nearly $16 Billion to Banks to Ensure Ample Liquidity

(Bloomberg) — China’s central bank injected medium-term cash into the financial system, in a push to keep borrowing costs low as the economy recovers from the virus pandemic.

The People’s Bank of China added 100 billion yuan ($15.5 billion) of one-year funds with its medium-term lending facility on Monday, matching the amount coming due in a move that was expected by analysts. The authorities kept the interest rate unchanged at 2.95%.

The operation, which is usually conducted once around the middle of every month, could further support Chinese sovereign bonds, coming soon after the country’s 10-year government yield and benchmark money-market rate both recently touched a four-month low.

The notes have gained for three weeks in a row, the longest run since January. That’s even as Treasury yields have climbed and a surprisingly quick jump in the nation’s factory-gate prices were seen to pose a challenge to current monetary policy.

Factors behind the resilience in China’s debt include ample liquidity and foreign capital inflows, which accelerated in April. While the loose conditions could be tested by a rise in debt sales in May, the PBOC’s vow to keep cash supply ample has boosted confidence.

The PBOC has done the minimum in its daily operations to manage short-term liquidity over the past two months. It has been injecting 10 billion yuan of cash daily — no matter the size of funds coming due — since the start of March. That’s a sign the central bank is so far pleased with the subdued volatility in the money market.

Contact editor Michael Bellart (michaelbellart@caixin.com)

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