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China’s PBOC Braces for New Year Cash Demand With Loan Rollover

The People’s Bank of China rolled over a 269.5 billion yuan ($43.4 billion) lending facility to banks and added 50 billion yuan in loans as it seeks to ease liquidity ahead of the Chinese New Year holiday.

The facility, first issued in October with an interest rate of 3.5 percent, was rolled over to keep the money market stable, the central bank said in a statement on its official microblog account. It said the move also aims to smooth liquidity before the holiday, which begins Feb. 18.

The PBOC has sought to shore up liquidity and broaden stimulus efforts in recent months, cutting the benchmark lending rate in November and issuing billions of yuan in short- and medium-term loans to banks. Each year around this time, demand for yuan starts to spike as Chinese give each other red envelopes full of cash for the Lunar New Year holiday.

“There may be some irregular capital inflow and outflow around the world,” PBOC Governor Zhou Xiaochuan said at a World Economic Forum panel in Davos, Switzerland minutes after the central bank announcement. “That may also be a source of volatility.”

The PBOC doesn’t intend to provide too much liquidity, Zhou said in Davos.

China’s money-market rate climbed the most in a month today amid speculation banks will start hoarding funds to meet demands for cash. The central bank hasn’t conducted open-market operations since November. Last month, the PBOC reportedly rolled over part of a separate 500 billion yuan lending facility.

To contact Bloomberg News staff for this story: Xin Zhou in Beijing at xzhou68@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net Nicholas Wadhams

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China’s central banker says cash crunch a reminder for banks – paper

SHANGHAI (Reuters) – The recent cash squeeze in China’s interbank market was caused by rapid loan expansion at some banks and is a timely reminder that they need to adjust their businesses, China’s central bank governor Zhou Xiaochuan said in an interview with China Business News.

The market volatility was the result of rapid loan growth in the first week of June, with excessive expansion in commercial paper business at some banks, reflecting lenders’ strong impulse to expand credit toward the end of June, Zhou was quoted by the newspaper as saying.

The central bank refused to inject liquidity into the market despite a surge in interbank rates because it wanted the banks to adjust their practices, and the message has been correctly understood by the market, Zhou said.

Zhou said banks had already scaled back their balance sheets since mid-June, and that as the lender of last resort, the central bank would definitely help institutions with acute liquidity shortages to maintain financial stability, the newspaper said.

Zhou added that the central bank would guide financial institutions to maintain reasonable credit levels to support the growth of the real economy, the paper said.

Zhou reiterated that China’s current economic situation was smooth and inflation stable, and that a prudent monetary policy was appropriate.

China’s chief banking regulator said on Saturday that liquidity in the banking system was sufficient and pledged to control risks from local government debt, real estate and shadow banking.

(Reporting by Melanie Lee and Samuel Shen; Editing by Jacqueline Wong)

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