It is standard practice for the People Bank of China (PBoC) to inject large amounts of liquidity into the banking system ahead of Chinese new year, said a research report of Capital Economics.
China's central bank said on Tuesday that it was injecting 440 billion yuan (nearly $67 billion or Rs 4.5 lakh crore ) into the money market, seeking to ease tight liquidity ahead of the Lunar New Year holiday when demand for funds surges.
The injection through the regular open market operations of the People's Bank of China (PBoC) was the largest since 2013, Bloomberg News reported.
Chinese companies typically pay salaries and bonuses before the holiday, which falls in early February this year. People also traditionally exchange cash and gifts during the period.
"It is standard practice for the PBoC to inject large amounts of liquidity into the banking system ahead of Chinese new year," Capital Economics said in a research report last week.
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"If it didn't, the increased demand for cash during the holiday would cause liquidity conditions to tighten significantly and interbank rates would surge." The PBoC last week flooded the financial system with more than 1.5 trillion yuan (nearly $230 billion or Rs 15.5 lakh crore).
Some analysts have likened the latest fund injections to a loosening of monetary policy or a replacement of funds lost to capital outflows.
ANZ Banking Group said the injections have prompted the central bank to hold off lowering the Reserve Requirement Ratio (RRR) for banks -- amount of funds they must put aside -- though a cut would eventually be needed to help boost the slowing economy.
"The PBoC has continued to inject short-term liquidity via open market operations and other policy tools in January and refrained from further reserve requirement ratio cuts," ANZ said in a research report on Monday.
"While the PBoC has used other tools to manage short-term liquidity in the market, we believe that further RRR cuts are still needed," it said.
China's economy grew at its slowest rate in a quarter of a century in 2015 at 6.9%, raising expectations for further cuts in interest rates or reserve requirements.
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