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PBoC likely to inject liquidity to banking system, to hike money market rates again in 2018 - Scotiabank

The People’s Bank of China stated that it conducted CNY 60 billion of seven-day reverse repos and another CNY 60 billion of 14-day reverse repo on Wednesday after skipping its daily open market operations for 12 consecutive sessions, noted Scotiabank in a research report.

At the end of December, the Chinese central bank had announced that it is setting up a transitory liquidity facility, which will permit commercial banks to cut their reserve requirement ratios by up to two percentage points for 30 days to fulfill their temporarily rising liquidity demand before the Chinese New Year holiday beginning from 15 February.

According to Scotiabank, China is expected to continue pushing forward with financial deleveraging while managing liquidity conditions properly to avoid credit crunch in the run-up to the holiday. The PBoC is expected to inject liquidity to the banking system again prior to the New Year and drain funds after that. The central bank is expected to hike its money market rates again in 2018 as the Fed is likely to hike the rates thrice this year, while leaving its benchmark 1Y lending rate on hold in the midst of benign inflation outlook, stated Scotiabank.

In December, China’s inflation rose 1.8 percent year-on-year, as compared with the consensus expectations of 1.9 percent. The producer price index meanwhile rose 4.9 percent from a year earlier.

At 12:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was highly bearish -137.736, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 69.4396. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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