China injects billions to avoid liquidity crisis in the new year

With an injection of $ 300 billion, China’s central bank tries to contain liquidity crisis in the new year while postponing reserve rates for economic caution

The China Central Bank injected a record volume of short -term funds into the financial system this week, in an effort to prevent liquidity scarcity that usually accompanies the Lunar New Year holiday.

According to the Financial Times, with the objective of softening seasonal turbulence, the total injection of RMB 2.2 trillion (US $ 300 billion) through 14 -day repurchase operations – a short -term liquidity instrument – occurs while millions Residents are preparing to travel home, pay taxes and distribute red envelopes with money.

Although these injections are common during the festivities period, the size of this week’s operation has reduced the expectations of an imminent cut in the Bank Reserve Rate (RRR), which defines the level of resources that banks should keep in reserve.

In recent months, Banco Popular da China (PBOC) has repeated that it would cut the RRR “at the appropriate moment” as part of the efforts to regain confidence in the economy. He also changed his attitude of monetary policy from “prudent” to “moderately expansionist” in an attempt to stimulate growth.

A rrr cut is widely seen as a significant measure of stimulus, focused on boosting long -term credit.

“The perspective of a cut in RRR before the new year now seems remote, given the current liquidity situation and the broader macroeconomic conditions,” said Wang Qing, Golden Credit Rating macroeconomic chief analyst.

“The Central Bank also anticipated a significant amount of medium -term liquidity in the market in December, leaving the system properly supplied, but not excessive.”

The postponement of a cut reflects the delicate balance of PBOC, as the Central Bank seeks to reserve the use of its tools to be an economically challenging year, analysts said. China’s real estate market has been hit by a prolonged crisis, and companies prepare for the impacts of Donald Trump’s protectionist policies.

Given the strong sign sent by a cut in the RRR and the limited space for PBOC reduces it further, the Central Bank would like to “reserve some ammunition for the signaling effect in the future,” said Xiaojia Zhi, China’s chief economist no Credit Agricole. The average bank reserve rate in China is currently 6.6%.

PBOC is expected to depend more on open market operations in 2025 to manage liquidity rather than cuts in the basic interest rate or RRR, Lynn Song, chief economist at Ing to Greater China. “Significant interest rates and RRR rates are probably being reserved for a more appropriate time.”

With deflationary pressures increasing and the real estate sector still in crisis, Beijing tries to reheat the second largest economy in the world. However, it also wants to avoid greater devaluation of Renminbi.

Renminbi Offshore has faced pressure, weakening 3% over the dollar since Trump’s victory in the presidential election in early November, while the rigidly controlled onshore currency remained close to 16 months at the beginning of the year, before recover recently.

The possible climb of commercial tensions between China and the USA has increased capital escape fears, limiting PBOC’s ability to reduce interest rates.

“The recent pressure on the Yuan rate will impose restrictions on PBOC’s monetary loosening measures,” according to an internal memorandum of a state bank seen by Financial Times. “The Central Bank also used subtle actions to moderate market expectations of greater loosening at this time.”

Since December, the Central Bank has established a strong daily reference rate for Renminbi, issued offshore titles and has stopped buying government titles. This suggests that PBOC is prioritizing currency stability compared to other growth goals, said Larry Hu, China’s chief economist in the macquarie.

“Last year, the PBOC adopted a strategy we call ‘enduring until the Fed Ceder,'” Hu said. “Now, with Yuan under pressure due to the strong dollar, the PBOC has to hold back until the dollar weakens. For now, Yuan’s stability is the priority of other politics goals. ”

Still, some analysts said they believed that more substantial movements are coming after the Lunar New Year holiday and that PBOC has a variety of tools available.

“There are some that the PBOC could consider, including reverse repurchase operations of various deadlines, net government bond purchases, as well as cuts in RRR,” said Crídit Agricole.