PBoC delivers bigger than expected short-term liquidity injection
The People's Bank of China added liquidity to the financial system at the start of the week following the release of weaker than expected readings for the country's industrial production and retail sales for July during the previous session.
China's central bank extended 700bn yuan of one-year loans via its medium-term lending facility on Monday, up from the two batches of MLF loans worth a combined 550bn yuan that were due to expire in August, albeit at the same rate of 2.95%.
"The PBOC has been somewhat stingy with liquidity in 2020, conscious of creating even more bubbles in its economy. A low headline number could provoke profit-taking in Chinese equity markets as the new week starts," Oanda senior market analyst, Jeffrey Halley, had told clients ahead of the decision.
For other analysts, the PBOC was aiming to continue to provide sufficient liquidity to the economy while giving financial institutions room to invest in upcoming government debt sales.
The monetary authority described the move in a statement as a one-off to "fully meet market demand".
Another 50bn yuan was injected into the financial system by the monetary authority via seven-day reverse repurchase agreements, also at a steady rate.
Also ahead of Monday's announcement, economists at Barclays Research had reiterated their forecasts for Chinese gross domestic product to grow at a year-on-year pace of 5.2% over the three months to September, after growth of 3.2% in the second quarter.
Barclays anticipated that stronger than expected export growth and sustained investment would offset the weaker than forecast recovery in domestic consumption.
During the second quarter, China's GDP had surprised to the upside, expanding at a clip of 3.2% year-on-year following a plunge of 6.8% during the first three months of the year as Asia's largest economy went into a lockdown against Covid-19.
Nonetheless, some analysts thought the official statistics might be overstating the extent of the rebound during the second quarter and yet others believed China would struggle to deliver the boost to global GDP that it managed after the 2008-09 financial crisis.
In another potentially positive development, there was 'market chatter' in the background on Monday regarding a likely positive outcome to the upcoming review of the phase one trade deal by officials from Beijing and Washington.