China's central bank injected a near record-high amount of liquidity into the banking system to help meet demand for cash even as it looks to support the yuan.
The People's Bank of China on Wednesday pumped 959.5 billion yuan, or about $130.9 billion, worth of liquidity via seven-day reverse repurchase agreements.
It was the second-largest such capital injection via the mechanism on record, according to data from the Wind, a local data provider.
The move is aimed at offsetting the impact of the expiration of medium-term lending facility loans, plus tax payments due and increased cash demand before the Lunar New Year holiday, the PBOC said in a statement.
Wind data showed that a total of 995 billion yuan worth of MLF came due in January.
Demand for cash typically increases ahead of the Lunar New Year holiday, as consumers withdraw cash to buy goods for the most important Chinese festival of the year.
Given repeated pledges from PBOC officials to ease monetary policy further, economists have been expecting the central bank to cut lenders' reserve requirement ratio, which would help replenish liquidity in the financial system.
Wednesday's liquidity injection also comes as the central bank ramps up efforts to support an embattled yuan. The currency's weakness in the face of broad dollar strength and concerns about potential trade tariffs from the U.S. has stoked some worries that the PBOC would feel constrained in providing ample liquidity to the economy as monetary easing could further intensify downward pressure on the Chinese currency.
Policymakers have so far refrained from making any rate cuts or lowering the RRR since September last year.
The central bank on Wednesday sold a record 60 billion yuan of six-month bills in Hong Kong in a bid to drain liquidity in the offshore market to support the yuan.
Economists continue to expect more significant policy action from the Chinese central bank this year, though many say this will need to be accompanied by fiscal firepower in order to deliver meaningful economic improvement.
The bank last year introduced several major policy changes, including a shift to a "moderately loose" monetary stance.
Wei He at Gavekal Dragonomics noted that PBOC Gov. Pan Gongsheng has overseen multiple interventions in financial markets, demonstrating a willingness to take aggressive measures that surpass market expectations.
"Now that top policymakers have provided him a mandate for greater monetary easing, there is a growing chance that in 2025 he might take extraordinary steps to boost market sentiment, such as a major one-off interest-rate cut," he said in a recent note.
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