China’s central bank has pledged more than 600 billion yuan (USD 91 billion) in funding support for banks to provide sufficient liquidity around the traditional Chinese New Year, when demand for cash surges.
Chinese companies typically pay salaries and bonuses before the holiday, also known as the Spring Festival, which falls in early February this year. People also traditionally exchange cash and gifts during the period.
The People’s Bank of China (PBoC) said it will provide funds through its lending facilities, as well as through the money market, according to a statement posted on its website late Tuesday.
“The People’s Bank will strengthen advance fine-tuning for liquidity arrangements before and after the Spring Festival to effectively meet the liquidity needs of financial institutions,” it said.
Although the demand is seasonal, some analysts likened the move to a loosening of monetary policy after China’s economy grew at its slowest rate in a quarter of a century in 2015 at 6.9 percent, raising expectations for further cuts in interest rates or reserve requirements for banks.
Nomura International said the move had lessened the chance of a cut in the reserve requirement ratio (RRR) for banks— the amount of funds they must put aside—later this month.
“The PBoC would like to turn to open market operations to manage liquidity and interbank interest rates, rather than to use regulatory monetary policy tools like the RRR or benchmark (interest) rates,” it said in a research report on Wednesday.
“The bottom line is that the PBoC will keep liquidity abundant.”
Worries over China’s slowing economy have caused capital to flow out of the country, analysts say.
The government allowed the yuan to depreciate early this year, before stepping in and stabilising the exchange rate.
On Wednesday, the central bank fixed the yuan at 6.5578 to USD 1.0, slightly stronger than the previous day.
China maintains tight capital controls, only allowing the yuan to move up or down two percent against the US dollar from the daily fix.