PBOC Offers Record $112 Billion Of Cash As Economy Struggles

(Bloomberg) -- China extended its support for the economy with the largest injection of medium-term policy loans ever, as the nation’s growth recovery remained fragile amid a housing slump and weak demand.

The People’s Bank of China offered commercial lenders a net 800 billion yuan ($112 billion) of one-year loans while keeping the interest rate on the funding unchanged. The injection was more than twice the amount seen by analysts queried in a Bloomberg survey and was also larger than the infusion last month. 

China’s economy has struggled this year as a rebound from restrictive Covid Zero policies proved to be weaker than expected and the property crisis deepened. The nation reported mixed data on Friday, with its industrial production beating expectations but retail sales trailing estimates in November. 

The continuation of support underscores Beijing’s preference to keep liquidity ample, after the nation in October made a rare move to raise the fiscal deficit ratio to a three-decade high and allowed the government to sell 1 trillion yuan of additional sovereign bonds within the year. Sudden cash tightness caused by seasonal factors and the debt issuance spooked investors in recent months. 

“The large amount of MLF injection seems to suggest less chance of a reserve-requirement ratio cut in the near term, and it seems that the PBOC is probably still prioritizing foreign-exchange stability and refrains from pursuing aggressive stimulus,” said Michelle Lam, Greater China economist at Societe Generale SA. “However, with domestic demand still on a shaky ground, we think there will still be more RRR and interest rate cuts next year.”

The PBOC pumped 1.45 trillion yuan via its medium-term lending facility on Friday, exceeding the 650 billion yuan coming due in December.

Adding to the support, Chinese authorities earlier relaxed homebuying curbs in Beijing and Shanghai, extending efforts seen in major cities to stem an unprecedented housing downturn. The nation’s capital cut the down-payment ratio for second homes to 40% or 50%, depending on the locations of the properties. Shanghai also made a similar move. 

China’s Mixed Economic Data Unlikely to Quash Growth Concerns

Traders have long been debating how the PBOC should ease its policy to aid growth. While some argue Beijing should use more targeted tools to inject liquidity such as the MLF, others say the central bank should lower the amount of cash lenders must hold in reserve to release cheaper and longer-term funding. 

What’s for sure is that fiscal stimulus will play a bigger role next year. In a meeting earlier this week, China’s policymakers called for “appropriately stepped up” fiscal measures, as well as “prudent” monetary policy. That echoed a message from a huddle of the party’s 24-member Politburo last week, which was seen as taking a pro-growth stance. 

The market reacted positively to the liquidity injections and other support measures. China stocks rose, with those in Hong Kong leading gains in Asia, and the Hang Seng China Enterprises Index was up more than 3%. The yuan pared losses in onshore trading. 

“Lack of confidence is still the key factor hindering growth, but a lower rate will help the economy,” said Serena Zhou, economist at Mizuho Securities. “I still look for 20-basis-point cuts to interest rates and 50-basis-point cuts to the RRR next year - the room for further monetary easing is relatively limited.”

(Adds background on housing support in 7th paragraph, and market reactions in 10th paragraph.)

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