China to ‘timely replenish’ liquidity shortfalls with cash injections before Lunar New Year holiday

China’s central bank is set to replenish liquidity shortfalls before the Lunar New Year holiday, the China Securities Journal reported, even as markets were split on whether more monetary easing was imminent in the world’s second-largest economy.

The People’s Bank of China (PBOC) is likely to step up cash injections through open market operations into the banking system from the second half of the month.

The moves are intended to meet rising demand for cash from both companies and households ahead of the week-long holiday, which starts from January 31, the official newspaper reported.

“Many financial institutions believe it is certain that the central bank will maintain reasonably ample liquidity … and the it is likely to use various policy tools including reverse repos and medium-term lending facility to meet institutions’ reasonable funding demand and to tide over the Lunar New Year holiday smoothly,” the newspaper said.

Ming Ming, chief economist at Citic Securities, expects the liquidity gap in the banking system to reach 2.6 trillion yuan (US$409 billion) in January.

The financial system is also likely to face additional strains, with another 500 billion yuan worth of medium-term lending facility (MLF) loans due to expire this month, according to official data, and China’s struggling developers facing a string of bond repayment deadlines.

Nomura estimates that Chinese developers have some 210 billion yuan (US$33 billion) worth of onshore and offshore bonds maturing in the first quarter of this year, which could weigh on both liquidity and market sentiment.