China adds more cash to economy to fuel recovery

China adds more cash to economy to fuel recovery
Central bank hopes to build on positive signs for the world’s second-largest economy.
SEP 15, 2023

China’s central bank ramped up efforts to accelerate an economic recovery, releasing more cash into markets as data show fresh encouraging signs for the country’s growth momentum.   

The People’s Bank of China added a net 191 billion yuan ($26.3 billion) into the financial system via a one-year policy loan Friday, a day after announcing another cut to lenders’ reserve requirements, a move that could free up as much as 500 billion yuan by some estimates. It also injected 34 billion yuan via a 14-day money-market loan. 

The central bank kept the MLF borrowing cost, a policy rate, unchanged at 2.5%, after a surprise 15-basis-point cut last month.

The series of cash injections by the PBOC indicate policymakers’ intention to solidify the momentum of economic recovery, with August data from industrial production to retail sales showing further signs of improvement. The latest monetary easing and upbeat economic indicators appear to have revived risk appetite among investors, pushing up the yuan and yields on Chinese government debt. 

The yuan rose as much as 0.5% against the dollar after the MLF operation and the August data release, while the yield on China’s 10-year government bond gained 3 basis points to 2.65%.

“The outsized MLF together with the more permanent liquidity released from the RRR cut shall provide strong support to the market,” said Frances Cheung, a rates strategist at Oversea-Chinese Banking Corp. “The unchanged MLF rate suggests policy focus moves away from the price of money to more direct support via fiscal spending and liquidity injection.”

The funding support also may be intended to cater to banks’ need to meet seasonal demand arising from regulatory requirements, as well as a surge in local government bond issuance. 

The PBOC’s liquidity boost comes as more green shoots are emerging in the world’s second-largest economy, with data showing activity gathered pace in August amid a summer travel boom and in the wake of a stimulus push. That added to a recent credit rebound and easing deflationary pressures. 

In Friday’s money market operation, the PBOC also slashed the interest rate on the short-term loan by 20 basis points. The rate reduction doesn’t necessarily signal fresh policy easing as it is considered a follow-up move after last month’s 10-basis-point cut to the cost of seven-day loans.

“It appears the economy has been bottoming out. I think the worst for CNY is probably behind you,” said Zhou Hao, chief economist at Guotai Junan in Hong Kong, adding that he expects policymakers to cut interest rates further and push out more supportive measures.

Latest News

Fintech bytes: Envestnet reaffirms $1B RIA commitment with Tamarac tech investment
Fintech bytes: Envestnet reaffirms $1B RIA commitment with Tamarac tech investment

Also, Orion has added BlackRock, Fidelity, and Vanguard to its custom portfolios suite, and RedBlack has set up a new headquarters after crossing a trillion-dollar milestone.

RIA moves: Maridea acquires multigenerational practice in Pennsylvania debut
RIA moves: Maridea acquires multigenerational practice in Pennsylvania debut

Also, New York-based Legacy Edge Advisors names its first-ever CEO, while Novare Capital Management hires a Vanguard veteran with a multigenerational planning focus.

Private equity eyes 401(k) plans, but fees remain a hurdle
Private equity eyes 401(k) plans, but fees remain a hurdle

Asset managers are racing to bring private market products to retirement plans, but cost and liquidity concerns linger.

IRS floats proposal ending tax breaks for schools that weigh race
IRS floats proposal ending tax breaks for schools that weigh race

Treasury's latest tax-exemption crackdown on private schools lands in the wake of a separate push to restrict refundable credits for some immigrant filers.

Trust over tech:  The hidden signal of stock success in the AI era
Trust over tech: The hidden signal of stock success in the AI era

Workforce trust measures predicted which companies came out ahead during COVID-19. The same dynamic may now be playing out across the AI transition — and the data suggests the spread could be just as wide.

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income