SHANGHAI: China's central bank injected 498 billion yuan (US$73.27 billion) into the financial system on Tuesday, as authorities walked a tight rope between maintaining adequate liquidity conditions and keeping a tight leash on speculative lending activity.
The injection was made through the People's Bank of China's (PBoC) medium-term lending facility (MLF) as some loans came due.
The central bank has kept cash conditions relatively tight in recent months to support the government's de-leveraging efforts, but authorities have been careful not to squeeze conditions too much for fear that a spike in rates could hurt the economy.
All of the funds were released via one-year loans, with the interest rate unchanged at 3.20%, the PBoC said in a statement published on its website.
Three batches of earlier MLF loans totaling 431.3 billion yuan are due to mature in June, according to Reuters calculations based on official data from the central bank.
The PBoC had telegraphed Tuesday's move about two weeks ago when it said it would effectively roll over maturing MLF loans in early June.
Six-month MLF loans worth 151 billion yuan were due to mature on Tuesday, while 73.3 billion yuan worth of one-year loans will mature on Wednesday. Another batch of six-month loans worth 207 billion yuan is set to mature on June 16.
Since Tuesday's injection exceeded the amounts coming due, some traders said the PBoC may not pump additional cash into the system for the rest of this month although some believed a rate increase was likely.
In March, after the US Federal Reserve raised interest rates, the PBoC lifted short-term interest rates in what economists said was a bid to stave off capital outflows and keep the yuan stable.
The Fed's rate-setting committee is due to meet on June 13-14.
Many analysts expected that the Chinese central bank was likely to raise short- and medium- term market rates this month amid rising expectations of a US interest rate increase.
"We expect the PBoC to raise interest rates on its MLF loans by 10 basis points again as the Fed remains on track to deliver a 25 bp rate hike next Thursday," Scotiabank said in a note ahead of the MLF operations on Tuesday.
The central bank skipped daily reverse repos on Tuesday. - Reuters
Win a prize this Mother's Day by subscribing to our annual plan now! T&C applies.
