China's Central Bank injects liquidity through reverse repos, MLF

(MENAFN) On Monday, China's central bank took measures to inject liquidity into the banking system through both reverse repurchase agreements (repos) and the medium-term lending facility (MLF). The People's Bank of China conducted a 2 billion yuan (approximately 281.77 million U.S. dollars) seven-day reverse repo operation at an interest rate of 1.8 percent. Additionally, a total of 100 billion yuan was injected into the market through the MLF, with a maturity period of one year and an interest rate of 2.5 percent.

The objective behind these liquidity injections is to maintain reasonable and ample liquidity within the banking system, thereby ensuring that financial institutions have access to the funds necessary to meet their operational requirements. The central bank's statement emphasized the importance of satisfying the liquidity needs of financial institutions to support the smooth functioning of the financial system.

Reverse repos involve the central bank purchasing securities from commercial banks through a bidding process, with an agreement to sell them back at a later date. This mechanism allows the central bank to provide short-term liquidity to banks while simultaneously managing monetary policy objectives.

Introduced in 2014, the MLF serves as a tool to assist commercial and policy banks in maintaining liquidity by enabling them to borrow from the central bank using securities as collateral. This facility provides banks with access to medium-term funding, helping to ensure stability in the financial system and support lending activities.

Overall, these liquidity injections reflect the central bank's proactive approach to managing liquidity conditions in the banking system and supporting financial stability. By utilizing tools such as reverse repos and the MLF, the central bank aims to address short-term liquidity needs while maintaining overall stability in the financial markets.



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