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 Global shares and commodity prices rose on the reported move,
although local money market rates climbed on the day, reflecting
continued tightness in liquidity.
The Wall Street Journal, citing an unnamed Chinese bank executive,
said the People's Bank of China (PBOC) is pumping in 100 billion
yuan each into China's top five banks via standard lending facility
in the form of 3-month loans.
When contacted by Reuters, a PBOC spokesman said: “We will make an
announcement if we have any news.”
The central bank may be worried that an expected tightening in
liquidity ahead of the quarter-end as well as a series of upcoming
initial public offerings could trigger a sharp rise in short-term
rates, as was seen in June last year, when they surged to around 30
percent and roiled global markets, traders said.
Analysts say the amount is equivalent to a 50-basis-point cut to
banks' reserve requirement ratio – the level of cash commercial
lenders must carry on deposit with the PBOC. However, an RRR cut
would have a longer-lasting and larger impact across the economy.
"We think the latest SLF is mainly aimed at providing liquidity to
pre-empt potential liquidity shortages in the banking system in the
coming weeks," Jian Chang, China economist at Barclays Capital in
Hong Kong, said in a research note.
Still, a liquidity injection of this scale does have the effect of
easing overall credit conditions and helps to stabilize a shaky
economy after a weak start to the year. Some analysts believe the
reported move shows the PBOC's continued willingness to use targeted
steps, rather than large-scale stimulus or interest rate cuts, to
support growth.
"This (SLF) is consistent with our view that targeted easing
measures will be used in view of the deceleration in economic
activities as reflected by recent data," Credit Agricole said in a
research note.
Bloomberg, which quoted an unnamed government official, said the
move follows deep concern over the economic slowdown.
The reports come after a series of soft data underlined the
headwinds confronting the economy, which suffered its weakest growth
rate in 18 months in the first quarter. A sharp slowdown in the
housing market, which accounts for more than 15 percent of China's
annual economic output, has also become an increasing drag on the
broader economy.
Data out at the start of the week showed China factory output grew
at the weakest pace in nearly six years in August, raising fears
that the economy may be at risk of a sharp slowdown unless Beijing
implements fresh stimulus measures.
China's leaders have repeatedly said they would use a period of
anticipated slower growth to carry out structural shifts, including
efforts to wean the economy off dependence on external demand and
investment spending. Still, the drumbeat of weak data has heightened
speculation that Beijing would be forced to do more to keep the
economy on an even keel.
Concerns of a deeper downturn in the world's second-largest economy
have buffeted global markets in recent months, and other major
central banks such as the European Central Bank and the Bank of
Japan are expected to ease further to support their economies. The
U.S. Federal Reserve, however, is expected to start raising rates at
some point next year as growth there gathers momentum.
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The benchmark seven-day bond repurchase agreement opened at 3.25
percent but the weighted average rate crept back up to 3.38 percent
by late session, compared with 3.33 percent the previous day.
Stocks ended firmer, with both the CEI300 index of top Chinese
companies and the Shanghai Composite Index rising 0.5 percent.
PBOC RELUCTANT TO USE BIG-BANG MEASURES
The PBOC launched Standing Lending Facility in 2013 to supplement
other monetary policy tools such as open market operations.
SLFs are mainly used to provide one- to three-month loans directly
to commercial banks to smooth out volatility in rates and its impact
on the economy is seen limited compared with cuts in banks' required
reserve ratios (RRR) or interest rate.
"Authorities appear reluctant to use national-wide measures such as
a headline cut in the RRR or the deposit rate as these may not be
the most effective ways to support growth," Credit Agricole said.
Analysts also note that Beijing is wary of offering big-bang
stimulus - as it did following the 2009 global financial crisis -
due to worries of exacerbating China's debt problem and knocking the
economy hard.
In response to slower growth, Beijing this year has rolled out a
number of policy support measures targeting specific sectors, such
as agriculture and small- medium-sized enterprises.
Money markets rates have remained fairly steady but traders have
predicted they will rise in the next few weeks due to seasonal
demand as well as the slew of upcoming IPOs.
Eleven Chinese companies are launching IPOs in coming weeks, which
is expected to temporarily suck up 1 trillion yuan from the market,
according to traders' estimations.
That would only lead to pent up cash demand at quarter-end when
banks are required to set aside cash to meet regulatory
requirements, such as a 75-percent loan-to-deposit ratio.
An acute Chinese liquidity squeeze roiled global markets in June
2013, when China's short-term money rates shot up as high as 30
percent, driven by quarter-end cash calls as well as the central
bank's inaction.
($1=6.144 Yuan)
(This story has been refiled to remove an extraneous word and fix a
spelling in the 18th paragraph)
(Additional reporting by Kevin Yao in BEIJING; Editing by Shri
Navaratnam)
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