China urges markets to focus on rates, not liquidity, to avoid ‘misunderstanding’ of monetary policies
- China is poised to withdraw its 9 trillion yuan (US$1.4 trillion) stimulus rolled out last year to fight the coronavirus and help affected businesses
- The US Federal Reserve and the European Central Bank, on the other hand, are continuing to signal monetary policy loosening
China’s central bank has called for attention to be focused on policy rates rather than liquidity operations as concerns over the country’s exit from its coronavirus-driven stimulus package hang over the world’s second-largest capital market.
The People’s Bank of China (PBOC) injected only around 430 billion yuan (US$66 billion) of liquidity into the market ahead of the Lunar New Year holiday, 750 billion yuan less than a year earlier.
A large liquidity withdrawal also started on Thursday, with only 20 billion yuan of reverse repo sold despite 280 billion yuan of reverse repo and 200 billion yuan of medium-term lending (MLF) facilities maturing.
The key areas to watch should be policy rates of open market operations and the medium-term lending facility, as well as the operation of loan prime rates
“Currently, the market should not pay too much attention to the liquidity volume of the central bank. Otherwise, it could misunderstand its monetary policies,” said a commentary in the Financial News, a newspaper affiliated with China’s central bank.
