A little over a week after cutting the MLF rate for the first time since 2016, and a little less than a week before the release of the November loan prime rate, China injected a surprise 200 billion yuan in one-year liquidity. The rate was unchanged at 3.25%.
The move was a surprise, in that it wasn’t aimed at rolling maturing loans, but rather appears to be a “pure” liquidity injection, and it came on the same day that the second of two targeted RRR cuts went into effect (recall that the across-the-board RRR cut announced in September was accompanied by a pair of targeted cuts, which were to be implemented in October and November), releasing an addition 40 billion yuan in long-term liquidity.
The PBoC mentioned tax payments in the announcement and described liquidity conditions as being at a “reasonably ample level” after today.
It now seems even more likely that the loan prime rate will be cut for a third time since the revamped calculation was introduced back in August. The LPR was not cut in October, but was reduced in September and in August, when the “new” version debuted.
“The mid-month [MLF] operation could become ‘regular’ in the future, as the PBOC uses it as a tool to push the loan prime rate lower”, Natwest’s China economist Peiqian Liu told Bloomberg.
The MLF operation on Friday came during a week when data showed China’s credit growth collapsed in October well beyond what the season drag “should” have entailed.
Aggregate financing was just 618.9 billion yuan last month, well short of the 950 billion yuan consensus expected, and below even the most tepid estimate. It represented the slowest pace of credit growth in years.
October’s activity data (retail sales, industrial output and fixed investment) also disappointed this week, perhaps giving authorities some extra incentive to act.
And yet, it still appears as though Beijing is taking a reactive, piecemeal approach to stimulus and liquidity provision as opposed to a proactive, “bazooka” approach. That’s in keeping with the desire to avoid giving anyone the impression that China has been forced to abandon the deleveraging push altogether and it may also reflect some hesitancy about monetary easing in the face of the highest CPI inflation in seven years.
“But at least it has to release liquidity to support economic growth, especially after October’s sluggish credit lending data”, Nie Wen, economist at Hwabao Trust in Shanghai, told Reuters. “Consumer price inflation is high, but the producer price index is still in a negative range. Companies’ real borrowing costs remain high”.
It wasn’t enough to cheer Chinese equities, which fell on Friday, ultimately logging their first weekly loss in four.
The yuan also snapped a win streak this week. The currency was on pace for its first down week in five.