The Chinese government today announced that it is pumping around 340 billion yuan or equivalent to $51.7 billion into the market. The additional funding is the largest fund they ever fund into the market in three years as lots of traders are cashing out creating a big demand ahead of the Chinese New Year celebration.
According to the People's Bank of China, the offer will be done through reverse-repurchase agreements according to Bloomberg. The surge in demand is an annual problem faced by the government, however, with the additional problem due to slow economic growth, the fund injected is increasing drastically.
According to Liu Changjiang, an analyst at Soochow Securities Co. in Shanghai told the news agency that "The huge amount of open-market injections are targeting the pre-holiday cash demand. As the central bank has become less willing to cut reserve-requirement ratios, such short-term funds are only keeping the money market tightly balanced."
Previously, the government had already provided with a bond worth 190 billion yuan however, as it is nearing its maturity, more fund injection is needed. The aggressive fund-injection exercise done by the bank is now worth more than 1.5 trillion yuan and the fund is available in both short and medium-term lending to bank according to the Market Watch.
According to the Economic Times, the Chinese economy is currently growing at a slow rate which is just 6.9 percent for last year. Lots of analysts are expecting more cuts in bank interest rate will be done soon to cope with the current situation.
However, there is also some argument by some analyst that the fund injection was carried out by the bank because the central bank is not planning to cut down on its reserve requirement ratio. The step was taken by the bank because China has previously devalue its Yuan and by doing so it could jeopardize the currency to become weaker.
According to the Chinese custom, people will generally exchange cash and gift during the Chinese New Year. Due to this reason, a company will normally pay out bonuses and salary before the holiday starts hence causing lots of cash out to occur.
Currently, foreign exchange reserve in China had fell by $107.92 billion in December and the three years accumulation until January this year is currently at $3.33 trillion. The fund injected by the bank according to analyst will only provide a temporary solution as there will be a lot of liquidity after the holiday ended.
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