China funds banks with $25bn

China’s central bank, the People’s Bank of China (PBOC), has injected the smallest amount of medium-term cash into the banking system since November, indicating that policymakers are assessing the impact of past easing measures. The PBOC offered 170 billion yuan ($25 billion) of funds to banks through the medium-term lending facility, resulting in a net injection of 20 billion yuan in April, which is the smallest since November. The interest rate remains unchanged at 2.75%, the eighth month that the rate has remained constant, in line with the expectations of most economists and analysts in a Bloomberg survey.

The smaller liquidity provision reflects the PBOC’s assessment of the effects of its March easing, which involved both cutting the banking reserve ratio and providing more cash to support growth. China’s economic recovery appears to be on track, with credit expansion surging and exports beating estimates. The PBOC is likely trying to ensure that there is enough liquidity in the market to stabilise borrowing costs, which are under pressure to rise as demand to raise funds increases in a recovering economy.

The PBOC’s net injection via the medium-term lending facility in April was the fifth month in a row in which the central bank has taken such action. The PBOC also cut the required reserve ratio for lenders in March, which may have unleashed about 500 billion yuan of long-term funds into the financial system. PBOC Governor Yi Gang said during a Group of 20 meeting last week that China’s economy is rebounding, and the growth target of around 5% this year could be achieved as the property market improves.

While some smaller Chinese lenders have cut deposit rates in April, the PBOC has kept the policy rate steady. This move could encourage more borrowing and improve the profitability of some Chinese banks. The PBOC has said that credit growth will be kept reasonable, and the foundation of the economic recovery is not yet solid. The central bank refrained from repeating the line from the previous conference that there were “three pressures” of contracting demand, supply shocks, and weakening expectations. It also omitted the phrasing of counter-cyclical adjustment, which some analysts regard as a signal of narrowing chances for further loosening.