China’s central bank, the People's Bank of China (PBOC), injected cash into its banking system on Monday for the first time in months, lowering the interest rate
on 14-day reverse repos in a move signaling further easing of monetary conditions.
The PBOC supplied 234.6 billion yuan ($33.29 billion) through open market operations to maintain adequate liquidity in the banking system as the quarter ends. This included 160.1 billion yuan via 7-day reverse repos at 1.70% and an additional 74.5 billion yuan through 14-day reverse repos at 1.85%, compared to the previous rate of 1.95%.
While some analysts noted that this operation is not a significant policy shift, the use of 14-day repos typically supports the banking system ahead of extended holidays. The last use of this tool was in February before the spring break. Monday's injection comes ahead of China’s National Day holidays, which start on October 1. The reduction in the 14-day repo rate brings it in line with the 7-day rate, which was cut in July.
"I wouldn’t interpret this rate cut as a sign of broader monetary policy loosening," said Zhang Zhiwei, chief economist at Pinpoint Asset Management. "However, I do expect the PBOC to cut the 7-day repo rate and the reserve requirement ratio in the coming months."
The move comes as China faces deflationary pressures and struggles to boost economic growth despite various policy measures aimed at increasing domestic consumption. Speculation about further monetary easing grew last week following the U.S. Federal Reserve's significant half-percentage-point rate cut, fueling expectations that China may accelerate its easing efforts.
The PBOC last lowered its short- and long-term benchmark lending rates in July.
On Tuesday, top officials from the PBOC, National Financial Regulatory Administration, and China Securities Regulatory Commission are scheduled to hold a rare joint press conference to provide clarity on financial support measures for the economy.
As China’s economic activity weakens, global brokerages have revised their 2024 growth forecasts for the country to below the government’s official target of around 5%.
Earlier this month, President Xi Jinping urged authorities to work diligently to meet China’s annual economic and social development goals, as reported by state media. Photo by David290, Wikimedia commons.
