PBOC Adds $16.6 Billion to the Banking System to Offset Outflows

  • Six-month loans to 11 lenders priced at 3.35 percent
  • China GDP grew in third quarter at slowest pace since 2009

China’s central bank added funds to the banking system using six-month loans to keep borrowing costs down as a slowdown in the world’s second-largest economy spurs capital outflows.

The People’s Bank of China supplied 105.5 billion yuan ($16.6 billion) to 11 commercial lenders on Wednesday using the Medium-term Lending Facility, according to a statement posted on its official microblog. The rate was 3.35 percent, the same as for similar-term funds injected in August.

The move comes after a report Monday showed gross domestic product rose 6.9 percent in the quarter through September, the least since March 2009, and a gauge of financial institutions’ foreign-currency assets dropped by a record in September. The PBOC will probably use multiple tools including reserve requirements, open-market operations and other liquidity management facilities to keep interbank rates low and spur economic growth, Bank of America Corp. wrote in a note on Monday.

“The use of the MLF shows the PBOC’s intention to offset the drop in the yuan positions and stabilize the liquidity,” said Li Qilin, an analyst at Minsheng Securities Co. in Beijing.

China has cut interest rates five times since November and eased lenders’ reserve requirements to help minimize financing difficulties as growth falters. Premier Li Keqiang urged financial institutions to keep liquidity at a reasonable level to ensure adequate credit growth at an Oct. 16 meeting in Beijing.

Yuan positions at financial institutions accumulated from foreign-exchange purchases slumped an unprecedented 761.3 billion yuan in September, the fourth month of declines. Those for the People’s Bank of China dropped by 264.1 billion yuan, according to an Oct. 15 report. The central bank supplied 110 billion yuan via the MLF in August. Wednesday’s move adds to 490 billion yuan of such loans outstanding at the end of September.

“The PBOC aims to ensure liquidity is ample and push financing costs lower in the medium- to long-term,” said Chen Ji, a Shanghai-based senior researcher at Bank of Communications Co. “China is now more likely to announce targeted measures to spur growth while benchmark interest rate and reserve-requirement ratio cuts are still possible this year.”

— With assistance by Tian Chen, and Helen Sun

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