FX.co ★ China’s central bank makes new cash injections ahead of Lunar New Year

The US Federal Reserve is sometimes criticized for pumping money into the banking system without any good reason. However, the People’s Bank of China is known for injecting huge amounts of cash on a regular basis, especially ahead of the Chinese Lunar New Year starting on January 1. This year was no exception. In January, China’s central bank pumped hundreds of billions of yuan into the country’s financial system and announced monetary easing. The regulator usually releases extra money to support the country’s bank system ahead of the holiday season. In addition, the PBOC has lowered its reserve requirement ratio for most banks. As expected, the yuan has grown in value in response to these measures. Previously, the regulator's officials pledged to adhere to the neutral monetary policy. They claimed their main objective was to maintain steady economic growth and ensure the necessary level of liquidity in the financial system. Beijing is taking measures to encourage banks to support small businesses with easy loans. However, the effect of such policy on the domestic economy is waning. Thus, it is too early for the authorities to give up monetary easing. It seems that currently the regulator has no other options. All these factors, including the signing of the phase one trade agreement with the US, have given momentum to the renminbi. In response, the USD/CNH pair has instantly hit its lowest level since July last year.