China launches lending facility to inject more liquidity into market ahead of year-end loan expiration – Firstpost

China’s central bank launched a new lending tool on Monday to inject more liquidity into the market and support the flow of credit in the banking system ahead of trillions of yuan of loans expiring at the end of the year.

The People’s Bank of China said in a statement that it had enabled the open market direct reverse repo operations facility to “maintain a reasonable abundance of liquidity in the banking system and further enrich the central bank’s policy toolbox.”

About 2.9 trillion yuan ($406.58 billion) of medium-term loans will mature between now and the end of December, making it harder for banks to finance investment and revive flagging growth in the world’s second-largest economy.

Although it came into effect today, the PBOC did not mention the new tool in its open market operations statement on Monday.

In a separate statement announcing the new facility, PBOC said it will use this facility to trade with primary dealers in OMO on a monthly basis.

The announcement stated that the new instrument will have a maturity of less than one year, a longer maturity than regular reverse repo operations, which typically have seven, 14 or 28-day maturities, are conducted on a daily basis and normally require collateral.

The operations will help the central bank raise funds through commercial banks, which purchase securities with the intention of selling the same assets back at a profit in the future.

Beijing is relying on massive fiscal stimulus announced in September to kick-start lending and investment as a sharp downturn in the real estate market and weak consumer confidence weighs on investor confidence.

The PBOC, which has been steadily cutting interest rates and injecting liquidity, is under pressure to do more to ensure the economy grows in line with the government’s target of about 5 percent this year.

The new tool will cover three- and six-month maturities and will help with liquidity adjustments next year, state-owned Shanghai Securities News said in an article published shortly after the PBOC’s announcement, citing sources close to the central bank.

“The central bank’s choice to launch 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.