China’s Central Bank Injects Cash and Lowers 14-Day Reverse Repo Rate, According to Reuters

SHANGHAI (Reuters) – China’s central bank initiated a 14-day cash injection into its banking system for the first time in months on Monday, doing so at a lower interest rate, indicating a desire to further relax monetary policy.

The People’s Bank of China (PBOC) pumped 234.6 billion yuan (approximately $33.29 billion) into the banking sector through open market operations, emphasizing the need to “maintain adequate liquidity at a reasonable level in the banking system” as the quarter-end approaches.

The PBOC also provided 160.1 billion yuan through 7-day reverse repos at an interest rate of 1.70%. Additionally, it injected 74.5 billion yuan via 14-day reverse repos at a rate of 1.85%, a decrease from the 1.95% rate during the prior operation.

Analysts pointed out that this funding move does not signify a major shift in policy. The PBOC has historically employed 14-day repos to support the banking system during prolonged holidays, with the last usage prior to the spring break in February.

Monday’s injection comes just before China’s National Day holidays set to begin on October 1. The reduction in the 14-day repo rate aligns it with the already lowered 7-day repo rate established in July.

Zhang Zhiwei, chief economist at Pinpoint Asset Management, stated, “I wouldn’t interpret this rate cut as a signal that the PBOC is loosening monetary policy further.” However, he anticipates possible cuts to the 7-day repo rate and the reserve requirement ratio in the coming months. A press conference is scheduled for the following day, during which financial regulators will clarify their policy stance.

China’s economy is contending with deflationary pressures and is struggling to boost growth despite various attempts to encourage domestic spending. Speculation regarding potential monetary easing intensified last week after the U.S. Federal Reserve initiated its easing cycle with a significant half-percentage point cut.

The PBOC last adjusted its short and long-term benchmark lending rates in July. The heads of the PBOC, National Financial Regulatory Administration, and China Securities Regulatory Commission will hold an uncommon joint news conference on Tuesday at 9:00 a.m. (0100 GMT) to discuss financial support for the economy.

Diminished economic activity in China has led global brokerages to revise their 2024 growth forecasts for the country to below the government’s official target of around 5%.

President Xi Jinping has urged authorities to make efforts to achieve the country’s annual economic and social development objectives, as reported by state media earlier this month.