China Central Bank To Inject Additional Liquidity Into The Economy For Fifth Time

According to a poll of traders and analysts, China's central bank is expected to inject more liquidity when rolling over maturing medium-term policy loans for the fifth consecutive month on Monday, while keeping the interest rate unchanged.

According to traders and analysts, the People's Bank of China (PBOC) will continue to keep ample liquidity on hand to support the economy and offset the impact of next week's tax collection.

Levies during the April tax season could drain up to 1.7 trillion yuan ($248.5 billion) from the banking system, according to CITIC Securities.

"The central bank needs to step in with more fresh capital when the market is dealing with such volume," said a bond fund manager in Shanghai who did not want to be identified.

Despite the fact that China ended its strict zero-COVID policy in December, its recovery has been slow, and March's disinflationary data suggests that consumption demand remains sluggish, raising expectations of additional fiscal and monetary stimulus.

A poll of 29 market observers this week predicted that the PBOC would maintain the interest rate on its one-year medium-term lending facility (MLF) at 2.75 percent.

Among them, 23 expected the central bank to inject an additional 100-300 billion yuan through MLF operations, while the remaining six expected only a full rollover of the maturing debt of 150 billion yuan ($21.93 billion).

"Because the size of maturing loans is small, an outsized rollover is likely, with the incremental estimated at 200-300 billion yuan," a Beijing-based analyst says.

In addition to the massive MLF rollover, analysts and traders expect the central bank to inject new funds through open market operations next week.

The MLF rate serves as a guide to the loan prime rate (LPR), and markets generally use the medium-term policy rate as a forerunner to changes in lending benchmarks.

On April 20, the monthly LPR fixing is due.