The People’s Bank of China has taken steps to ease financial conditions after interbank rates doubled in the second half of the year, reflecting the challenge it faces in navigating a return to normal monetary conditions, reported the Financial Times.
The central bank supplied more liquidity than the market anticipated in mid-December via its medium-term lending facility, through which it provides one-year loans to the banking system. The scale of a reverse repo operation in late December — another way of injecting cash into the system — also exceeded expectations, analysts said.
The moves to ease banks’ access to funding come after conditions tightened in the second half of 2020 as China’s economic recovery gathered pace. They also illustrate the pressure facing the central bank as it grapples to control leverage across a rapid but uneven economic recovery without excessively constraining the flow of money to businesses and households, reported the FT.
“The policymakers want a smooth transition from the past stimulus to a normalized policy,” said Chaoping Zhu, global market strategist at JPMorgan Asset Management. The central bank is now trying to “stabilize the market rate to prevent a sudden dry-up of liquidity” from occurring, he added.
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