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China central bank drains liquidity from stock market

Published: July 23, 2019 11:22:55 | Updated: July 26, 2019 14:25:36


File Photo (Collected)

China’s central bank drained 164.3 billion yuan (about 24 billion US dollars) from the financial system on Tuesday, with more reverse repos and medium-term lending facility (MLF) maturing than conducted.

The central bank injected a total of 497.7 billion yuan into the market via MLF and targeted medium-term lending facility (TMLF), as 502 billion yuan of MLF matured, the bank said on its website.

According to the People's Bank of China (PBOC), the 200 billion yuan MLF will mature in one year at an interest rate of 3.3 per cent, while the TMLF totalling 297.7 billion yuan will mature in one year at an interest rate of 3.15 per cent, reports Xinhua.

The central bank skipped reverse repo operations on Tuesday citing reasonably sufficient liquidity in the banking system. On the same day, 160 billion yuan of previous reverse repos matured.

The MLF tool was introduced in 2014 to help commercial and policy banks maintain liquidity by allowing them to borrow from the central bank using securities as collateral.

TMLF was introduced in December 2018 to encourage lending to small and private businesses.

A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.

China will keep its prudent monetary policy "neither too tight nor too loose" while maintaining market liquidity at a reasonable level in 2019.

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