The People’s Bank of China (PBOC) initiated a new lending mechanism on Monday to infuse more liquidity into the financial system and facilitate credit flow in preparation for the imminent maturity of trillions of yuan in loans by the year-end.
The central bank announced the activation of the open market outright reverse repo operations facility to ensure a sufficient level of liquidity in the banking system and diversify the central bank’s range of policy tools.
As approximately 2.9 trillion yuan ($406.58 billion) in medium-term loans are set to mature within the period spanning between the present time and the conclusion of December, banks might encounter challenges in financing investments and revitalizing the sluggish growth in the world’s second-largest economy.
Meanwhile, the PBOC did not include any reference to the new tool in Monday’s open market operations statement. A separate statement suggests that the central bank will engage in trading activities using this tool with primary dealers in the open market operations (OMO) on a monthly basis.
The newly introduced measure is anticipated to have a maturity period of less than a year, surpassing the standard tenors seen in regular reverse repo operations, which typically range from seven to 28 days, conducted daily, and require collateral backing.
These operations are projected to assist the central bank in acquiring funds through commercial banks that purchase securities with the intention of reselling them at a profit in the future.
Following the noteworthy financial stimulus unveiled in September, Beijing is banking on reviving lending and investment activities, particularly amid a significant decline in the property market and wavering consumer sentiment that are dampening investor outlook.
The PBOC, through its consistent reduction in interest rates and liquidity injections, faces mounting pressure to implement further measures to ensure that the economy attains the government’s growth target of approximately 5% for the current year.
