THE central bank is likely to pause to assess economic conditions before making any further moves to ease lenders’ reserve requirements, after better-than-expected growth data reduced the urgency for action, policy insiders said.

The People’s Bank of China extended 267.4 billion yuan (US$39.8 billion) to some commercial banks yesterday via its targeted medium-term lending facility (TMLF) as it looks to provide smaller business with a steady stream of affordable financing.

The injection of funds came a day after the central bank denied rumors that it will cut reserve requirement ratios (RRRs) — the share of cash banks must hold as reserves.

The central bank said the one-year interest rate on the TMLF was 3.15 percent, the same as the previous operation, and 15 basis points lower than medium-term lending facility (MLF) loans.

Although the central bank’s easing bias remains unchanged, it sees less room this year for cutting RRRs as fiscal stimulus plays a bigger role in spurring growth, according to government advisers involved in internal policy discussions.

The People’s Bank of China is also worried that pumping too much cash into the economy could reignite bubbles over time, the policy insiders said, and wants to save some of its policy ammunition.

But they stressed the central bank’s easing bias remains unchanged, and noted that fiscal stimulus such as tax cuts are only beginning to work their way through the economy, providing continued policy support in various forms.

The latest TMLF “matches the central bank’s recent attitude that it does not want the market to speculate on further monetary policy easing,” Stephen Chiu, forex and rates strategist at China Construction Bank (Asia) in Hong Kong, said in a note.

Expectations of further stimulus in China have shifted markedly since the release of better-than-expected first-quarter GDP and March economic data last week.

The data added to optimism that the economy may be starting to stabilize after growth slowed to a near 30-year low in 2018, though analysts cautioned it was too early to tell if a turnaround can be sustained.

Fears of less stimulus have triggered a sharp reversal in the country’s rallying stock markets, which are highly sensitive to liquidity changes.

“As today’s TMLF already represents the TMLF for the whole of the second quarter, the market remains worried about reduced easing or even tightening,” said Frances Cheung, head of macro strategy for Asia at Westpac in Singapore.

But “the macro backdrop does not justify a shift in the monetary policy stance to the hawkish side yet, in our view, as after all, there are only preliminary signs of a bottoming out in economic activities,” she added.

Uncertainty also remains over what the central bank will do when MLFs mature in coming months, Cheung said. A total of 819 billion yuan worth of such loans are set to expire in May and June.(SD-Agencies)