China central bank injects $89.9 billion of liquidity in March, up sharply from February

China's central bank injected 618.99 billion yuan ($89.93 billion) into the financial system via short- and medium-term liquidity tools in March, up nearly 50 percent from the previous month, even as financial markets feared a cash crunch.
The sharp increase followed a 35 percent drop in injections in February, which in turn fuelled worries about tighter liquidity in March, sending some short-term money market rates higher and knocking China's stock markets in recent weeks. The People's Bank of China (PBOC) skipped open market operations for seven straight sessions through Saturday, repeatedly saying that liquidity levels in the banking system were "relatively high", despite typically stronger demand for funds at the end of the quarter.
Adding to tighter conditions, some banks were believed to be hoarding cash and curbing lending to each other ahead of a rigorous quarterly inspection of their books by the PBOC. In recent months, the PBOC has adopted a modest tightening bias in a bid to cool explosive growth in debt and wring excess leverage out of the financial sector, though it is treading cautiously to avoid hurting economic growth.
Its modest short-term interest rate increases this year have often been accompanied by various forms of liquidity injections to keep financial markets from reacting too strongly. On March 16, the PBOC raised interest rates on its reverse repurchase agreements, standing lending facility (SLF) and medium-term lending facility (MLF) loans, following a rise in rates on the reverse repos and SLF in early February.
Outstanding MLF loans totalled 4.064 trillion yuan at end- March, compared with 3.761 trillion yuan at end-February, implying a net injection of 303 billion yuan. Outstanding SLF loans were at 70 billion yuan at end-March, compared with 14.92 billion yuan the previous month, implying a net injection of 55.08 billion yuan. Total March SLF injections were 121.99 billion yuan, with around two-thirds of that in loans for a period of seven days or less, suggesting there was strong demand from banks for short-term funds.
The PBOC uses the SLF and the medium-term lending facility as tools for managing liquidity in the banking system. China's pledged supplementary lending (PSL) facility stood at 2.216 trillion yuan at end-March, up 5.2 percent from end- February, the central bank said. China's banks made 1.17 trillion yuan in new local-currency loans in February, falling sharply from near-record levels in the previous month but more than analysts had expected, highlighting the difficulties authorities are facing as they struggle to get rising debt under control.
Even as officials warned about the dangers from a rapid build-up in debt, China's banks extended a record 12.65 trillion yuan of new loans in 2016. The credit spree helped the economy to expand 6.7 percent, roughly in the middle of the government's target range. Beijing has set a slightly more moderate growth target of around 6.5 percent this year.