HONG KONG (BLOOMBERG) - China caught traders off-guard with a surprise injection into the financial system via loans to banks, ahead of data on Friday (Oct 18) which is expected to show a further slowdown in the domestic economy.
The People's Bank of China added 200 billion yuan (S$38 billion) of one-year cash through the medium-term lending facility on Wednesday. It kept the interest rate steady. The move took traders by surprise, as the authorities usually inject liquidity when previously offered loans come due, and the next batch won't mature until Nov 5.
The Chinese economy has been under pressure amid a prolonged trade dispute with the United States and a slowing domestic economy, prompting the central bank to ease monetary policy by lowering corporate borrowing costs and cutting banks' reserve ratios this year.
Data released this week showed that China's factory deflation deepened and imports and exports fell last month.
"It's not expected by the market," said Ms Becky Liu, head of China macro strategy at Standard Chartered, referring to the cash injection.
"They probably want to inject more long-term liquidity" to ensure ample supply during the tax payment season in mid-October and to support the economy, which is still facing growth pressure, she said.
Market reaction is muted, however, "probably as the rate is kept unchanged" while other central banks are cutting interest rates, according to Frances Cheung, head of Asia macro strategy at Westpac Banking Corp.
The yield on China's 10-year government bonds fell one basis point to 3.16 per cent as of 10.34am in Shanghai.