China's Central Bank Maintains Key Policy Rates, Injects Liquidity

China's central bank, the People's Bank of China (PBOC), announced on Wednesday that it will keep its key policy rates unchanged. However, in response to the growing demand for cash, the PBOC also injected additional liquidity into the market.

Liquidity Injection

The PBOC injected a total of 1.45 trillion yuan ($199.91 billion) worth of funds through the one-year medium-term lending facility (MLF) at the prevailing interest rate of 2.5%. This figure represents the same amount injected in the previous operation.

According to local data provider Wind, there were 850 billion yuan worth of MLF due on Wednesday.

In addition to the MLF injection, the central bank also provided 495 billion yuan of liquidity through seven-day reverse repurchase agreements at an interest rate of 1.8%. Wind reported that there were 474 billion yuan of reverse repos maturing on the same day.

Purpose and Market Expectations

Market analysts anticipated that the central bank would increase liquidity in the market by cutting banks' reserve requirement ratio. However, instead of resorting to this measure, the PBOC chose to utilize the MLF and reverse repo mechanisms to meet the growing demand for funds.

This move is expected to alleviate some of the pressure on funds as Beijing plans to issue more government bonds to support its slowing economy.