China’s central bank has increased liquidity support to the banking system by conducting medium-term lending facility (MLF) operations worth 789 billion yuan ($107.96 billion) to maintain adequate liquidity. With 500 billion yuan worth of MLF loans maturing, the PBOC is pumping 289 billion yuan of fresh liquidity into the banking system, the largest net injection in nearly three years. The easing measures have had some effect, with gross domestic product expanding faster than analyst forecasts in the third quarter and retail sales beating estimates last month. The injection of extra cash may ease market concerns over a liquidity crunch, as central and local governments are expected to sell more bonds to fund stimulus and as the tax payment season approaches.
The PBOC injected cash using reverse repurchase contracts, causing the seven-day repo rate to surge 25 basis points to a six-month high of 2.32%. Chinese lenders maintained the one-year loan prime rate at 3.45% and the five-year rate at 4.2%.
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