Recently, China’s central bank extended $28.60 Billion (200 billion yuan) with its MLF (medium-term lending facility)—which is the second time it has done this month—while maintaining the lending rate unmodified. The step to add long-term funds made the market surprised as the PBOC (People’s Bank of China) had previously injected funds in the last week. Many traders stated that the cash injection was probably a response to stronger liquidity in the interbank market, which pitched borrowing costs. Nie Wen—Economist at Hwabao Trust, Shanghai—reported the fund injection through MLF loans was to get ready for the deficit in liquidity even after several RRR (reserve requirement ratio) cuts so far this year.
In the short duration, high consumer price rises were keeping lawmakers from straight away cutting the interest rates, he said. Nie further added, “But at least it has to let go liquidity to back economic growth, particularly following October’s slow credit lending data. The consumer price inflation is greater, but the PPI (producer price index) is in a pessimistic range. The firms’ real borrowing costs stayed high.” The markets are closely watching for any indications of liquidity pressure following a government acquisition of an Inner Mongolia bank and state-salvage of other small lenders in this year revived apprehensions concerning the health of hundreds of small banks across the country as China’s economic growth dipped to around a 30-Year low.
Similarly, PBOC was in news as the central bank plans to work with Huawei on blockchain technology. In a formal declaration released on the Chinese messaging app WeChat, Huawei shared its plans to work with the PBOC on financial research and digital asset integration. During a meeting, the Digital Currency Research Institute—which is a part of the PBOC—inked a MoC (memorandum of cooperation) with Huawei while participating in the 27th China International Finance Exhibition, Shenzhen.
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