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UPDATE 1-China makes mid-term loan injection seen as 'neutral'
July 13, 2017 / 3:35 AM / 5 months ago

UPDATE 1-China makes mid-term loan injection seen as 'neutral'

* Injection size similar to mid-term loans maturing in July

* skips reverse repo open market operations

* Interest rates on 360 bln yuan in MLF loans unchanged (Adds quotes, details)

SHANGHAI, July 13 (Reuters) - China’s central bank injected 360 billion yuan ($53.06 billion) in medium-term loans into the financial system on Thursday, a fresh sign authorities aim to maintain financial stability while continuing a deleveraging campaign.

The injection was made through the People’s Bank of China’s (PBOC) medium-term lending facility (MLF) loans. A similar amount of such loans matures this month.

The MLF loans injected on Thursday have a one-year tenure, with interest rates unchanged at 3.20 percent, the PBOC said in a statement on its website.

MLF loans totalling 357.5 billion yuan mature in July. Two batches that together are worth 179.5 billion yuan are due to mature on Thursday.

Another batch of one-year loans worth 39.5 billion yuan will mature on July 18 and 138.5 billion yuan of six-month MLF loans will be maturing on July 24.

Traders and analysts said Thursday’s cash injection through MLF loans was well within market expectations.

Nie Wen, economist at Hwabao Trust in Shanghai, called Thursday’s MLF operation “neutral”.

“Starting late June, liquidity in the financial system has improved while the pace of reducing leverage has become slower,” he said.

Nie added that authorities have set financial stability as a key task for the second half after a deleveraging drive between April and early June impacted financial markets.

However, a fixed-income trader at an asset-management firm in Shanghai said Thursday’s injection of one-year MLF loans may have the effect of extending maturities, as some of the loans due in July had tenors of a few months.

While banks are unlikely to be affected, entities more sensitive to short-term funding costs may have a more bearish outlook as a result, the trader said.

In a report in early July, the PBOC said it would steadily push forward financial regulatory reform and improve the stability of financial institutions, as well as appropriately deal with some high-risk institutions this year.

In Thursday’s statement, the PBOC said it was skipping reverse repos in open market operations.

Until Tuesday, when it had open market operations, the PBOC had abstained from them for 12 straight sessions, citing either “relatively high” or “appropriate” liquidity levels in the banking system. ($1 = 6.7852 Chinese yuan) (Reporting by Winni Zhou and Andrew Galbraith; Editing by Richard Borsuk)

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