China launches new borrowing tool before year-end loan expires By Reuters
Written by Joe Cash
Beijing – China's central bank launched a new lending tool on Monday to pump more money into the market and support the flow of credit in the banking system before billions of yuan in loans expire at the end of the year.
The People's Bank of China in a statement opened an open market operation center to “keep more money in the banking system and enrich the central bank's policy box”.
2.9 billion yuan ($406.6 billion) in medium-term loans are expected to mature between now and the end of December, making it harder for banks to fund investment and revive impressive growth in the world's second-largest economy.
Although it went into effect on Monday, the PBOC did not mention the new instrument in its statement of open market operations.
In a separate statement announcing the new facility, the PBOC said it will use it to conduct monthly OMO transactions with primary dealers.
The announcement said the new instrument will have a tenor of less than one year, longer than that of conventional repo transactions, which usually have a tenor of seven, 14 or 28 days, are executed daily and usually require collateral.
“It appears to be a technical development, which is part of the central bank's effort to make the monetary policy framework more effective and better manage the money supply,” said Xu Xianchen, senior economist at the Economist Intelligence Unit.
“This type of repo is very common in the European Union and the United States, so it is a step to modernize the PBOC's policy toolbox and make it more compatible with them,” he added.
Beijing is counting on massive fiscal stimulus announced in September to boost lending and investment, as a sharp decline in the property market and consumer confidence dents investor confidence.
The PBOC, which has cut interest rates slightly and injected liquidity, is under pressure to do more to ensure the economy grows in line with the government's target of around 5% this year.
The state-run Shanghai Securities News said in an article published shortly after the PBOC's announcement that the new instrument would include three- and six-month tenders and the adjustment of bailout funds over the next year, citing people close to the central bank.
“The choice of the central bank to introduce this new instrument at this time is also expected to be a better hedge against the expiry of the medium-term lending facility before the end of the year,” the article added.
($1 = 7.1326)
