China Increases Liquidity Support to Banks as Major Holiday Nears

(Beijing) — China’s central bank has injected a net 160 billion yuan ($23 billion) into the market this week to stave off a temporary seasonal credit crunch ahead of the country’s Lunar New Year holidays.

The People’s Bank of China (PBOC) on Wednesday released a net 40 billion yuan through so-called reverse repurchase agreements, and a combined net 120 billion yuan on Monday and Tuesday through open market operations.

The moves were taken to help banks meet greater demand for cash, which typically surges 10 to 12 weekdays before the Spring Festival holiday, according to Guotai Junan Securities. The holiday, when people need money for travel and food, gifts and cash-filled “red packets” for family gatherings, begins on Jan. 27.

Despite the injections, liquidity pressures remain large because banks need to return this month a total of 435.5 billion yuan they borrowed earlier from the PBOC through medium-term lending facilities, said Citic Securities bond analyst Ming Ming. After the holiday, an obvious gap in supply and demand for money may emerge, he said.

The Chinese government’s attitude toward money supply has changed from “keeping liquidity reasonably abundant” to “keeping liquidity basically stable,” according to the announcement of December’s Central Economic Work Conference. This was a key annual meeting in which the ruling Communist Party sets an agenda for the next year’s economic and financial development.

This minor difference in phrasing the goal about liquidity reflected the central bank’s intention to slightly tighten its grip on money supply this year, Everbright Securities said earlier in a research report.

Overall, this year’s money policy has shifted toward more prudence, according to analysts.

Contact reporter Wang Yuqian (yuqianwang@caixin.com)