China pumps largest monetary support since 2020 to lift its slumping economy

The People’s Bank of China (PBoC) is pumping the largest financial liquidity in the medium term since 2020 as it strengthens its efforts to support the economic recovery and debt sales in the country.

“Pumping 289 billion yuan (39.6 billion dollars) into the financial system through the one-year loan window is the largest amount since December 2020. At the same time,” the People’s Bank of China said.

China is struggling with its faltering economy, as consumer prices reflect weak demand, and data released last week showed that the volume of loans extended came in below expectations. Beijing and local governments are boosting debt sales to finance stimulus spending, increasing the need for more liquidity in the financial system.

“The aim of the additional liquidity injection is to maintain stable liquidity conditions among banks in light of the increase in issuance of debt swaps issued by local governments as well as a stronger demand for liquidity during tax payment times, and this also reflects the strong demand of commercial banks for liquidity,” Becky Liu, head of the China Macroeconomics Strategy Unit at Standard Chartered Bank, explained.

The People’s Bank of China kept the medium-term lending facility interest rate unchanged at 2.5%, in line with expectations. Yields on two- to 10-year sovereign bonds rose by one basis point to three basis points today.

The move comes as the Chinese government is considering a new round of stimulus packages to help the economy meet its official annual growth target of about 5%.

Data compiled by “Bloomberg” revealed that the Ministry of Finance sold 1.2 trillion yuan of central government bonds last September, up 60% from the average for the same month of the past three years.