China’s central bank injected Rmb502bn ($74bn) of cash into the banking system on Monday morning through loans to commercial banks, in the latest indication that policymakers are moving to ease monetary policy as the economy slows.
The injection was the People’s Bank of China’s largest ever using its so-called Medium-term Lending Facility, a policy tool created in 2014 to provide loans to commercial banks for three to 12 months.
The loans comes on top of other recent monetary easing moves, including a cash injection of about Rmb700bn in late June, when the PBoC cut the share of deposits that banks must hold on reserve at the central bank, where they are unavailable for lending and investment.
The provision of extra liquidity shows Beijing is moving to support growth as a slowdown in housing and infrastructure adds to pressure from an escalating trade war with the US.
China’s economy grew at 6.7 per cent in the second quarter, official data showed last week, its slowest pace since 2016. A broad measure of credit from both banks and non-bank sources grew at its slowest pace ever in June, while growth of M2 money was also the slowest on record.
Though second-quarter growth was only 0.1 percentage points slower than the pace of the previous nine months, economists expect further deceleration in the coming months, as the impact of a fierce campaign to restrain runaway debt growth has strangled financing flows to many companies.
Financial stress is rising among marginal borrowers: 150 peer-to-peer lending platforms have collapsed since the beginning of June amid a wave of borrower defaults.
Policymakers are now attempting to walk a tightrope between staying the course on deleveraging, which will address long-term financial risks, and supporting short-term growth.
“Releasing liquidity can activate some credit flows, but it’s still too early to call this broad-based stimulus,” said Shao Yu, chief economist at Orient Securities in Shanghai. “This is more about replenishing liquidity than fully opening the floodgates. Right now deleveraging is still the main emphasis.”
In a speech to senior bank executives last week, Guo Shuqing, PBoC party secretary and head banking regulator, urged banks to increase lending to small and medium-sized enterprises — remarks that were interpreted as a call for faster loan growth overall.
Last week the PBoC also guided interest rates lower on so-called “fiscal deposits” — government cash that accumulates at the central bank before being periodically auctioned off to commercial banks, increasing liquidity in the financial system.
But monetary easing is likely to exacerbate recent renminbi weakness, at a time when currency has emerged as a new front in the trade war. On Friday US President Donald Trump and US Treasury secretary Steven Mnuchin both criticised China for the weak renminbi.
Additional reporting by Yizhen Jia
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