China’s central bank balance sheet has been contracting so far in 2019, by 2.4 trillion yuan as targeted liquidity facilities have been retired by funds from reserve requirement cuts. This is not a signal of a shift in the PBOC’s monetary easing bias, but it does show a change in liquidity management amidst a booming equity market. Without introducing new liquidity facilities, further expansion of the PBOC balance sheet to ease monetary conditions will be difficult under the current policy framework. As a matter of necessity, interest rate adjustments will become more prominent as monetary policy tools.
