(Bloomberg) — China’s central bank added more cash into the financial system to meet a rapid, post-Covid Zero rebound in loan demand, while keeping its key policy rate steady for now as the economic recovery takes shape.Most Read from BloombergThe People’s Bank of China injected a net 199 billion yuan ($29.15 billion) with its one-year medium-term lending facility (MLF) this month, broadly in line with the 200 billion yuan median forecast of economists surveyed by Bloomberg. The MLF borrowing rate was left unchanged at 2.75% on Wednesday, as expected by the majority of analysts in the survey.China’s abrupt removal of Covid restrictions has tightened liquidity as consumption revs up. Overnight money market rates spiked to the highest level since early 2021 last week, a sign of a cash squeeze in a still-fragile economy.Stocks in China and Hong Kong were lower amid a broad decline in Asian equities on Wednesday following hot US inflation data. A gauge of Chinese shares in Hong Kong saw its losses from a late January peak hit 10%, putting it on course for a technical correction. The onshore yuan tracked declines, weakening 0.2% to 6.8422 per dollar as of 12 p.m. Hong Kong time, a one-month low.While authorities have so far refrained from cutting policy rates this year, economists expect that to change in the coming months. China’s property sector is still struggling and exports have weakened, while the strength of the consumption rebound is uncertain. The central bank has vowed to implement “targeted and forceful” monetary policy this year, with a focus on boosting domestic demand.What Bloomberg Economics Says …Story continues“The People’s Bank of China’s hold on its one-year rate shows it is taking its time but we think it’s still inclined to ease further — we expect a 10-basis-point cut in the coming month or two. The reason is straightforward: the economy needs the extra support.”— David Qu, economistRead the full report here.Deputy Governor Xuan Changneng said last month authorities will maintain “reasonably sufficient” liquidity for the economy, adding that they would avoid flooding the economy with massive stimulus.There’s also more space for the PBOC to keep policy loose as the Federal Reserve slows the pace of its interest rate hikes. That’s eased pressure on capital outflows and helped to underpin the yuan, which has strengthened on the back of expectations China’s economy will perform better this year.Read More: Fed Officials Float Even Higher Rates After Brisk Inflation Data“The PBOC could observe more real data before it makes any major moves if needed,” said Xiaojia Zhi, head of research at Credit Agricole CIB in Hong Kong. “Conditions have remained on the tight side after the Lunar New Year holidays due to decent demand for longer term liquidity.”The timing of any reduction to the policy rate has been subject to debate, though, with some analysts seeing a cut more likely toward the end of the first quarter or in the second one.“Overall, the necessity and urgency for a rate cut is not high right now, considering restricting factors such as the yuan exchange rate and potential inflation pressure,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc.He said, though, that there may be a reduction in the five-year loan prime rate, a reference for mortgages, “due to the policy stance of lowering home purchase burden and stimulating residents’ housing demand.”–With assistance from Jing Zhao, Karl Lester M. Yap, Neha D’silva and Shikhar Balwani.(Updates with additional context and commentary about the economy and the possibility of future rate cuts.)Most Read from Bloomberg Businessweek©2023 Bloomberg L.P.

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