China c.bank injects 398 bn yuan via MLF, citing tight liquidity
Shanghai: China’s central bank lent 398 billion yuan ($61.76 billion) to financial institutions on Monday via its 1-year medium-term lending facility (MLF), citing a “relatively large” decrease in banking system liquidity, it said in a statement.
“With the present peak of tax payments, financial institutions’ reserve requirements and the maturing of repos and MLF loans, overall banking system liquidity has seen a relatively large decrease,” the People’s Bank of China said.
The new MLF loans inject a net 108.5 billion yuan after effectively rolling over 182.5 billion yuan worth of 1-year MLFs maturing on Monday and another 107 billion of the same tenor due to mature on Jan. 24.
On Dec. 14, the People’s Bank of China raised interest rates on liquidity tools, including the one-year MLF to 3.25 percent.
Despite the injection, traders said regulators continued to display a bias toward tightening.
“The market is deleveraging,” said a trader at an asset management firm in Shanghai, adding that the MLF injection “is actually a tightening sign...(the) PBoC is using the more expensive MLF intead of a repo to offer liquidity.”
Traders also cited a statement from the country’s banking regulator on Saturday as adding to market pressures.
The China Banking Regulatory Commission (CBRC) said that it would prioritize stricter supervision of shadow banking and interbank activities to reduce financial risks.
Prompted by the CBRC statement and tight conditions, the price of the most-traded Chinese treasury futures for March delivery was down 0.4 percent on Monday morning.
The yield on 10-year Chinese government bonds was at 3.96 percent, and an off-the-run 10-year Chinese government bond was quoted at 4.05 percent at one point in morning trade.