Liquidity conditions in China’s money markets will tighten seasonally ahead of the Chinese New Year holiday in early February. This year, PBOC management of this liquidity pressure will need to be particularly aggressive, to help money markets digest much larger local government bond sales in Q1, a key element of fiscal policy support in 2019. Adjustments to banks’ reserve requirements based on lending volumes to SMEs and the agricultural sector should ease money market conditions in January, along with other liquidity injections via the PBOC’s traditional tools and the newly introduced TMLF.
