BEIJING — China’s central bank has taken measures to inject additional long-term liquidity into the country’s financial system for the sixth consecutive month, aiming to strengthen economic growth in the face of a faltering recovery.
The People’s Bank of China has provided 125 billion yuan ($18 billion) through medium-term lending facilities, surpassing the 25 billion yuan amount that was set to mature in May.
This move comes as no surprise, as eight out of ten analysts surveyed by Bloomberg had anticipated a rollover without any changes. The interest rate on the one-year policy loans has remained steady at 2.75% for the ninth month in a row.
In April, China experienced weaker-than-expected inflation figures, along with a significant decline in imports and credit.
These factors have raised expectations that the People’s Bank of China may have the flexibility to intensify its monetary support.
Traders have eagerly awaited further indications of policy backing, and as a result, bond prices have surged in anticipation of increased assistance from the central bank.
“The net liquidity injection is small if not negligible, but it sends a signal to the market that the PBOC stays supportive via quantitative tools,”said Frances Cheung, rates strategist at Oversea-Chinese Banking Corp. in Singapore.
The decline in interbank rates, which serve as a gauge of borrowing costs for commercial lenders, has significantly diminished the appeal of the relatively expensive Medium-Term Lending Facility (MLF) funds.
This development has led to a surge in demand for safer assets, causing yields on 10-year government bonds to drop by two basis points on Thursday, reaching their lowest level since November.
Concurrently, concerns surrounding economic growth and the implementation of deposit rate reductions by certain lenders have contributed to this shift in investment preferences.
Following the operation, the yield on the 10-year sovereign note experienced a marginal increase of 1 basis point, reaching 2.71%.
Meanwhile, offshore yuan saw a slight uptick of 0.1%, trading at 6.9677 per dollar. The benchmark CSI 300 index initially faced a 0.3% decline at the market opening but managed to recover slightly, recording a 0.1% rebound.