THE central bank is injecting a combined 500 billion yuan (US$81.35 billion) of liquidity into the country’s top banks, according to media reports, a sign that authorities are stepping up efforts to shore up a faltering economy.

    The Wall Street Journal, citing an unnamed Chinese bank executive, said the People’s Bank of China (PBOC) is pumping in 100 billion yuan each into China’s top five banks via standard lending facility (SLF) in the form of 3-month loans.

    When contacted by Reuters, a PBOC spokesman said: “We will make an announcement if we have any news.”

    “We think the latest SLF is mainly aimed at providing liquidity to pre-empt potential liquidity shortages in the banking system in the coming weeks,” Jian Chang, China economist at Barclays Capital in Hong Kong, said in a research note.

    Still, a liquidity injection of this scale does have the effect of easing overall credit conditions and helps to stabilize a shaky economy after a weak start to the year. Some analysts believe the reported move shows the PBOC’s continued willingness to use targeted steps, rather than large-scale stimulus or interest rate cuts, to support growth.

    “This [SLF] is consistent with our view that targeted easing measures will be used in view of the deceleration in economic activities as reflected by recent data,” Credit Agricole said in a research note.

    Bloomberg, which quoted an unnamed government official, said the move follows deep concern over the economic slowdown.

    The reported step marks “the first clear policy response to weak August data” on the economy, Goldman Sachs Group Inc. economists including Beijing-based Song Yu wrote in a research note. “We expect monetary conditions to loosen modestly, which will provide some much-needed support for demand growth. Other policies may follow.”

    Further steps may include accelerating planned fiscal spending, the Goldman analysts wrote. They estimated that the reported 500 billion yuan extension of funds through standing lending facilities is roughly equivalent to a half percentage-point cut in banks’ required reserve ratio (RRR), though RRR moves tend to have a larger impact.

    (SD-Agencies)