The People’s Bank of China (PBOC) is increasing the money supply available to banks to meet the surge in cash demand expected during the Lunar New Year holidays. Late last week, the central bank injected 600 billion yuan through 14-day repurchase agreements, resuming these operations after a two-month pause. Industrial Securities anticipates the PBOC may inject up to 3.5 trillion yuan using similar methods before the holidays commence on Sunday. The People’s Bank of China is the central bank of the People’s Republic of China. It has the power to control monetary policy and regulate financial institutions in mainland China.
These injections aim to address an approximate 3.2 trillion yuan ($650 billion) liquidity shortfall, as calculated by Bloomberg. Several factors are expected to strain the banking system, including holiday-related spending withdrawals, substantial government bond issuances, and a spike in corporate yuan demand.
For the PBOC, ensuring smooth financial operations is vital to prevent a seasonal cash shortage and sustain economic momentum amid growing challenges. Prior to this recent action, the PBOC doubled its bond purchases in January and injected a record 1 trillion yuan of medium- to long-term funds into the banking system. These measures reflect the central bank’s proactive approach to maintaining financial stability during a period of heightened demand and potential volatility.