The People’s Bank of China added 300 billion of liquidity yesterday to help offset an expected squeeze on cash ahead of the Lunar New Year holiday.
The PBoC added the 300 billion yuan ($44 billion) through its medium-term lending facility priced at 3.25 percent after a rate cut in November. Another 100 billion yuan (14.5 billion) was injected through open market operations through 14-day repos at 2.65 percent after a 15-day hiatus.
The central bank continues to accommodate for expectations of major cash withdrawals ahead of the week-long Chinese holiday. Analysts estimate a 3.8 trillion yuan ($550 billion) liquidity gap that needs to be closed and the PBoC had already cut banks' cash reserve requirements by 50 basis points earlier this month which released an additional 800 billion yuan ($116 billion) of liquidity.
In December, Premier Li Keqiang’s spoke of lowering financing costs for smaller companies through broad-based and targeted RRR restrictions. The latest reserve requirement cut is estimated to release 120 billion yuan ($17.2 billion) to small and medium-sized banks which the PBoC hopes will be channeled to support small, local businesses.
