China injects more cash into banking system

China has continued its trend of injecting cash into the banking system for the 12th consecutive month through one-year policy loans, aimed at meeting the rising funding demand to support economic growth. The People’s Bank of China (PBOC) provided 1.45 trillion yuan ($200 billion) through its medium-term lending facility, exceeding the 850 billion yuan maturing in November by 600 billion yuan. This net injection represents the most substantial infusion since 2016.

The one-year policy loan rate was maintained at 2.5%, and the move is seen as an effort to address concerns about a potential liquidity crunch, especially as central and local governments are expected to issue more bonds to finance stimulus measures. The unexpected level of liquidity injection, surpassing market expectations, may ease apprehensions in the financial markets.

Becky Liu, Head of China Macro Strategy at Standard Chartered Plc, noted that the magnitude of the liquidity injection exceeded market expectations. There is speculation about the possibility of a reserve requirement ratio cut by the PBOC, although the timing remains uncertain. This injection of extra cash is seen as a response to challenges such as a property market downturn and slowing demand, which have fuelled concerns about economic growth since December 2022.