Media reports today claimed that the PBOC has asked banks to buy more corporate bonds, and is offering liquidity via the Medium-Term Lending Facility (MLF) proportional to those bond purchases. These reports, if true, reflect a further step in PBOC monetary easing, in trying to improve liquidity in the corporate bond market, but do not reflect a relaxation of regulatory tightening. More MLF issuance will see the PBOC’s balance sheet expand, and deliver additional depreciation pressure to the yuan, as seen in markets today.
