AsianFin -- China’s money markets are set to experience a liquidity withdrawal of over 3 trillion yuan ($411 billion) for the rest of the month, keeping funding costs elevated ahead of critical legislative meetings in March, Bloomberg reported.
The primary drain on liquidity will stem from the repayment of 2.4 trillion yuan in maturing policy loans issued by the central bank. Additionally, local government bond issuance is expected to absorb another 820 billion yuan, according to estimates from Huachuang Securities and data compiled by Bloomberg.
Tighter liquidity conditions could serve as a strategic move to support the yuan amid ongoing uncertainty surrounding U.S. tariff policies. Since the end of the Lunar New Year holidays on February 5, the People’s Bank of China has already withdrawn around 1.5 trillion yuan from the money market through daily open-market operations.
“Maintaining relatively tight interbank liquidity conditions helps defend the onshore yuan in such a volatile environment,” said Becky Liu, head of China macro strategy at Standard Chartered Bank in Hong Kong. She added that China is likely to maintain stability, particularly with potential tariff negotiations between U.S. President Donald Trump and Chinese President Xi Jinping on the horizon.
Explore more exclusive insights at nextfin.ai.
