The central bank has pumped money into the financial system in open market operations via medium-term lending facility.
China's central bank has injected a whopping 163 billion yuan (nearly $25 billion or Rs 1.71 lakh crore) into 20 financial institutions to ease liquidity strain in the world's second-largest economy, which is witnessing sluggish growth at present.
The People's Bank of China (PBOC) on Friday pumped 163 billion yuan (nearly $25 billion or Rs 1.71 lakh crore) into the financial system in open market operations via medium-term lending facility (MLF), the official Xinhua news agency reported on Sunday.
The MLF is a liquidity tool the PBOC introduced in 2014 to help commercial and policy banks maintain liquidity by allowing them to borrow from the central bank by using securities as collateral.
The fresh funds were injected into 20 financial institutions, according to the PBOC. The MLF worth 110 billion yuan had been due on the same day, the report said. Among the new funds, 47.5 billion yuan is for three months, 62 billion yuan is for six months, and 53.5 billion yuan is for one year, at interest rates of 2.75%, 2.85% and 3%, respectively.
China's economy grew 6.9% in 2015, the slowest since 1990, and the capital has been flowing out of the country due to worries about its flagging growth, causing the yuan to weaken. China's foreign exchange reserves also dropped $99.5 billion (nearly Rs 6.80 lakh crore) to $3.2 trillion (nearly Rs 218.7 lakh crore) in January.
The efforts of the PBOC to manage market liquidity after the Lunar New Year holiday will help ensure smooth liquidity conditions, allowing financial markets to function without disruption, according to an industry report.
Lowering MLF interest rates and showing a willingness to offer liquidity indicate the PBOC's intention to prevent interest rate spikes and keep the monetary stance relatively accommodative, said China International Capital Corporation (CICC) in a report.
The moves are also part of the reform to establish a market-based interest rate system, it said.
The CICC also suggested that a supportive monetary policy was needed as growth stabilisation becomes China's top priority.
On February 6, the PBOC had injected another 110 billion yuan (nearly $16.7 billion or Rs 1.14 lakh crore) into the financial system through open market operations to ease liquidity strain ahead of the Spring Festival holidays from February 7.
The PBOC made the injection through reverse-repurchase agreements (repo), in which central banks buy securities from banks with agreements to resell them in the future (repo). The move brought the total amount of funds pumped into the market through such operations this week to 620 billion yuan, following a net injection of 690 billion yuan in late January.
The bank has conducted reverse repos for eight working days in a row as a cash crunch is usually expected before the Spring Festival holiday week.
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