PBOC Cuts Back on One-Year Cash Injection Despite Weak Growth

China’s central bank scaled back its injection of medium-term policy loans, as it keeps liquidity support measured for the struggling economy.

(Bloomberg) — China’s central bank scaled back its injection of medium-term policy loans, as it keeps liquidity support measured for the struggling economy. 

The People’s Bank of China offered 103 billion yuan ($14.4 billion) of loans via the medium-term lending facility, 3 billion yuan more than what is maturing Monday. The size of net injection – albeit the eighth in a row – was the lowest since November. It kept the interest rate on funding unchanged after cutting it last month.

The moderate injection came after PBOC signaled Friday it may offer more support to the economy. Top central bank officials said they have enough room to ease monetary policy if needed and hinted at possible adjustments to the reserve requirement ratio for banks and further targeted easing of property controls. 

China’s economic growth continued to slow in the second quarter, with consumer spending easing notably in June, according data released on Monday.

“An RRR cut remains likely for the second half of the year, given rising MLF maturities in coming months,” said Becky Liu, head of China macro strategy at Standard Chartered Bank. The incentive for lenders to borrow from the PBOC could be reduced given liquidity is abundant in the secondary market, she added.

The PBOC is grappling with several challenges, including the looming prospect of deflation, subdued economic growth and a faltering property market. While speculation has grown the central bank will follow through with further easing after last month’s surprise interest-rate cut, economists say weak business and consumer confidence are reducing the effectiveness of monetary steps. 

The consumption-induced slowdown “calls for policy support on the demand side”, said Hao Zhou, chief economist at Guotai Junan Hong Kong Ltd. after the data dump. “We believe further rate cuts are more or less warranted, and see the MLF rates be lowered by another 10 basis points as soon as in the third quarter,” he said. 

The onshore yuan fell as much as 0.4% to 7.1680 per dollar. China’s 10-year government bond yield was little changed at 2.64%. 

–With assistance from Jing Zhao.

(Updates with China’s economic data in the fourth paragraph, Guotai Junan comments in the seventh and prices at the last paragraph.)

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