China’s central bank injected a massive amount of money into the financial system in recent days in a bid to meet the heavy cash demand ahead of the Lunar New Year.
The People’s Bank of China (PBoC) pumped 1.13 trillion yuan (about US$165 billion) into the money markets last week, a record for one week, The Wall Street Journal reports.
The cash injection, using a mix of short-term tools, came ahead of the Spring Festival holidays when Chinese consumers go on shopping sprees and hand out “red packets” to friends and relatives.
Meanwhile, companies also need to set aside funds for tax payments due later this month, the report noted.
The PBoC is preferring to use short-term measures to ease financial conditions rather than blunter instruments such as interest-rate cuts, analysts were quoted as saying.
Moves such as rate cuts could raise concerns about the economy’s health and encourage more capital outflows from the country, authorities fear.
“All the recent liquidity injections were temporary measures, which also means Beijing remains wary of the negative consequences that formal monetary easing will have on the currency and capital flows,” Zhu Chaoping, China economist at UOB Kay Hian Holdings, told the Journal.
On Friday, the PBoC said it will make 28-day loans available to several unidentified large commercial banks at market rates, via a newly created mechanism.
The combined effect of the cash injections and the new loan facility has helped reduce the interest rates banks charge to lend to each other, the report said.
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