PBOC Confirms New Liquidity Tool as It Holds Off Easing 

China’s central bank has published details on its latest tool to provide liquidity as banks from Goldman Sachs Group Inc. to Australia & New Zealand Banking Group Ltd. (ANZ) see a rate cut as unlikely.

The People’s Bank of China confirmed it pumped 769.5 billionyuan ($126 billion) into the country’s lenders in the last two months through a newly-created Medium-term Lending Facility.

The announcement, included in the PBOC’s quarterly monetary policy statement, is the first official confirmation of earlier reports on the injections. The facility is the latest unconventional liquidity tool as the PBOC joins the European Central Bank on a path of easing even as the U.S. begins the shift to a more normal monetary policy.

The operation so far is equivalent to a 75-basis-point cut in the required reserve ratio, according to ANZ. The central bank has left reserve requirements for the largest banks and benchmark interest rates unchanged for more than two years.

“China’s central bank will intensify the effort to lower the cost of funds facing the real economy, and more innovative policy instruments could be used to experiment the interest rate transmission mechanism,” ANZ economists Liu Li-Gang and Zhou Hao wrote in a note.

While “high-profile actions” such as a cut in benchmark interest rates and the required reserve ratio can’t be ruled out, “the probability of such moves is lower compared to further targeted easing,” Goldman Sachs economists led by MK Tang and Li Cui wrote in a note.

The operations “affected mid-term interest rates while providing liquidity to guide commercial banks to lower their lending rates and overall social-financing costs,” the central bank said in the report published yesterday.

The move builds on targeted steps to support growth in Asia’s largest economy, while stopping short of broad-based monetary loosening and fiscal stimulus that could heighten the risk of bad loans.
China will continue to implement a “prudent” monetary policy and use various tools to manage liquidity, the PBOC said.

Source: bloomberg-PBOC Confirms New Liquidity Tool as It Holds Off Easing

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