China pumps US$121 billion into economy in the biggest one-day cash injection to spur post-Covid growth

China ramped up its support for a nascent economic recovery, seeking to nip a squeeze in bank borrowing costs in the bud by injecting a record amount of cash to its financial system.

Supporting growth became China’s top priority after policymakers abruptly dismantled Covid restrictions late last year, as sporadic lockdowns and a property slump sank the economy. But as the end to zero-Covid lifts consumption and demand for loans, it’s also creating a liquidity shortage that could hinder a sustained recovery.

That is putting the PBOC in a bind. While it has to ease policy to replenish cash in the banking system, it cannot do it in an aggressive manner that places China too far apart from hawkish global peers. A major policy divergence could weaken the yuan and reignite foreign capital outflows – which were the worst ever in the bond market last year.

“The move is a reflection of the PBOC’s unswerving stance to keep liquidity ample,” said Chen Kang, an analyst at Northeast Securities. “Funding in the money market turned tighter yesterday, and we see the net injection as an immediate and efficient response.”

The PBOC offered 835 billion yuan (US$121 billion) of cash via seven-day reverse repurchase contracts on Friday, resulting in an injection of 632 billion yuan on a net basis. That is the largest one-day addition on record in data going back to 2004.