China May Inject Cash Soon as $139-Billion Maturity Wall Looms

(Bloomberg) — China is expected to take additional steps to boost its economy by making its biggest cash injection via medium-term loans this year or by reducing banks’ reserve requirement ratio as Beijing’s strict Covid curbs continue to weigh.

Most Read from Bloomberg

Six out of the nine economists and analysts in a Bloomberg survey expect the People’s Bank of China to offer 1 trillion yuan ($139 billion) one-year medium-term lending facility Tuesday, matching the amount maturing this month. Most of the remaining predict a partial rollover on expectations the PBOC may also lower banks’ reserve requirement ratio to aid the economy.

Either way, market consensus is for further PBOC easing in hopes that additional funding availability would encourage banks to extend more loans after the nation last month recorded the lowest credit growth since 2019. The cash injection could also soothe liquidity stress in China’s money market before year-end.

“Tighter liquidity may not be appropriate” as the key economic indicators including consumer and producer prices all showed weaker economic momentum, said Iris Pang, Chief Greater China Economist at ING Bank NV.

China’s one-year interest-rate swaps, a popular hedging tool sensitive to rate expectations, rose to a four-month high this week. The cost of issuing one-year negotiable certificate of deposits, a key form of banks’ short-term debt, also jumped to the highest since July.

Front-end yuan rates are relatively high, likely reflecting that investors have started to prepare for tighter liquidity at year-end, said Frances Cheung, rate strategist at Oversea-Chinese Banking Corp. “A full or near-full rollover of the relatively big sized MLF this month is probably needed to support liquidity,” she said.

Story continues

Expectations of further monetary support are also gaining momentum after the yuan halted its steep decline versus the dollar. The PBOC had been constrained earlier on concerns that more easing could further widen the US-China rate gap and drive outflows.

“The stabilization of yuan versus the dollar actually opens the door to PBOC monetary easing in the near future,” said Ju Wang, head of Greater China FX & rates strategy at BNP Paribas SA. The potential window could be the maturing 1 trillion yuan MLF next week or December, she said, adding that “we expect at least a full rollover, or even RRR cut.”

Shuang Ding, Standard Chartered Bank (HK) Ltd.’s chief economist for greater China and north Asia sees the PBOC rolling over 1 trillion yuan of policy loans with the risk of a RRR cut. Fresh evidence of waning demand warrants pro-growth policies and RRR cuts would provide cheaper and permanent liquidity to banks compared to MLF, he said.

For now, expectations for looser PBOC policy are in the form of liquidity injections. All but one of the 13 respondents in the survey forecast the MLF rate to be kept steady at 2.75% this month while one sees a 10 basis points reduction. The last time China lowered banks’ reserve requirement ratio was in April, with the last round of policy rate cuts delivered in August.

Here are some of the survey results:

–With assistance from Tomoko Sato and Qizi Sun.

Most Read from Bloomberg Businessweek

©2022 Bloomberg L.P.