China launches new lending tool to boost liquidity

The People’s Bank of China (PBC) has introduced a new lending tool to boost liquidity and support credit flow in the banking system before the expiration of trillions of yuan in loans at year-end.

The central bank activated the open market outright reverse repo operations facility to “maintain a reasonable abundance of liquidity in the banking system and further enrich the central bank’s policy toolbox.”

Approximately 2.9 trillion yuan ($406.6 billion) in medium-term loans are set to mature by the end of December, which could potentially hinder banks’ ability to finance investments and stimulate economic growth.

While the new tool became effective on Monday, the PBC did not explicitly mention it in its daily open market operations statement. In a separate announcement, the central bank clarified that the new facility would be used to trade with primary dealers in open market operations (OMO) on a monthly basis.

The new tool will have a tenor of less than one year, which is longer than the tenors of regular reverse repo operations. This adjustment is seen as a step towards modernising the PBC’s policy framework and aligning it with international practices.

Attribution: Reuters

Subediting: M. S. Salama