Author: Xie Jun

Posted on: May 16th, 2017



The use of monetary policy tools by China’s central bank does not mean a large amount of capital has been injected into the market, and the tools are being used rationally, experts told the Global Times Tuesday.

The People’s Bank of China (PBC), the central bank, injected 170 billion yuan ($24.7 billion) into the open market through reverse repos on Tuesday, the largest reverse repo move in nearly four months.

The stock market edged up slightly in response.

The Shanghai Composite Index rose by 0.74 percent to 3,112.96 points, while the Shenzhen Component Index increased 2.04 percent to 10,046.66 points.

On Friday, the PBC also injected 459 billion yuan into the market via the medium-term lending facility (MLF). The MLF operation included 66.5 billion yuan that will mature in six months and 392.5 billion yuan that will mature in one year.

Some domestic media outlets interpreted the PBC’s operations as a large-scale move to inject liquidity into the market.

But experts told the Global Times that the PBC’s stance on monetary policy has not changed, and that the use of tools such as the MLF are part of the bank’s normal behavior rather than any large-scale liquidity adjustment.

Liquidity concerns

The PBC’s intensified use of monetary policy tools comes at a time when the market has been hit by liquidity concerns.

According to a report by the 21st Century Business Herald on Tuesday, the interest rates in various financing channels, such as medium-term notes and enterprise bonds, have surged since the beginning of February.

The report also cited a source as saying that many companies are feeling pressure from rising financing costs and that his company had made plans to cope with insufficient liquidity. Tan Yaling, head of the Beijing-based China Forex Investment Research Institute, said that China’s overall capital supply is still at an adequate level. M2, a broad measure of the money supply, surged 10.5 percent year-on-year by the end of April, down slightly from 10.6 percent growth in March.

«But currently the liquidity allocation has an inclination to stay away from the real economy, something which the government does not want to see. Despite the authorities’ efforts to adjust this trend, financial organizations are not eager to offer loans to companies,» she told the Global Times on Tuesday.

Xi Junyang, a finance professor at the Shanghai University of Finance and Economics, echoed Tan’s views, saying that the country is not short of capital in general, but that the capital providers have been cautious about using their money. This is partly because stricter government regulations have cut off many investment channels, like certain wealth management products provided by banks, Xi noted.

Tightened management

Liu Dongliang, a senior analyst at China Merchants Bank, said that the cash shortage has also, to a certain extent, caused the slide in the domestic stock markets during the past month.

The Shanghai stock market slid from about 3,280 points around early April to about 3,080 points on Friday, while the Shenzhen market also went through a continual slump during the period.

The regulators have seemingly decided to give the nervous market a respite. On Friday, the China Banking Regulatory Commission announced that it would control the pace and strength of its supervision of the banking sector and would give a buffer period of between four to six months for banks that need to rectify their work.

«It’s probable that the government will be more moderate in its financial supervision in the future,» Liu told the Global Times on Tuesday.

Short-term operation

Experts stressed that the PBC has not made significant changes in its monetary policy and that the recent operations are just short-term adjustments.

«The PBC has not injected large-scale capital into the market and its use of monetary tools is just normal and short-term behavior,» Tan said.

Xi also said that the government’s monetary policy direction has been neutral so far this year, and it has not changed its stance on the issue.

«I think this neutral policy will last for a relatively long period of time, unless there’s a severe shortage of cash, which would prompt the government to pursue more active monetary policies,» he noted.

Chen Ji, a senior research fellow at Bank of Communications, noted that the PBC’s use of monetary policy tools is often for balancing purposes, such as using reverse repos to offset the influence brought by MLFs coming due.




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