Jan 03, 2019 (China Knowledge) - China will likely cut reserve requirement ratios (RRR) again this month and improve credit conditions ahead of the annual Lunar New Year in China which will result in a tightening of liquidity.
Chinese mainland residents are expected to withdraw RMB 1 trillion in cash ahead of the Lunar New Year due to the tradition of giving money in red packets. In addition, corporate tax payments and maturing interbank debt of many lenders will add to the liquidity crunch in the days leading up to the Lunar New Year.
The People’s Bank of China (PBOC) will likely release a significant amount of funds in order to meet the upcoming liquidity crunch such as through RRR cuts and providing funding for lenders who make loans to private companies.
This month, mainland lenders are due to repay more than RMB 800 billion worth of short-term interbank loans and another RMB 390 billion to the PBOC for its medium-term lending facility. Other factors such as corporate tax payments are said to withdraw an additional RMB 1.2 trillion from the liquidity system.
The PBOC will likely inject more cash into the system through repurchase agreements and lowering RRR requirements in response this month.
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