China has maintained market liquidity at current levels as policymakers try to balance between supporting the economy and preventing asset bubbles.
The People’s Bank of China (PBOC) funded the market with 500 billion yuan ($77.6 billion) through its medium-term lending facility and met the 500 billion yuan due on Friday. The interest rate on medium-term lending facilities remained at the level of 2.95%.
Concerns over the possible spread of the China Evergrande Group crisis are intensifying, as the PBOC’s decision raises uncertainty over the need for further monetary easing from heightened price pressures. Financial regulators asked some major banks last month to speed up mortgage loan approvals in the last quarter of the year, according to sources familiar with the matter.
Crisis Concerns Deepen
PBOC Chairman Yi Gang said at the G-20 central bank governors meeting Wednesday that China’s prudent monetary policy would be “flexible, targeted, reasonable and appropriate” and that these pathways would support high-quality economic development, and that inflation in his country would generally be “moderate.”
The yield on China’s 10-year bonds rose nearly two basis points to 2.97%, while 10-year bond futures fell to their lowest level since the beginning of July.
China also provided liquidity to the market with a maturity of 10 billion yuan through seven-day reverse repo in open market operations.
