(Yicai) Dec. 2 -- The People's Bank of China injected CNY1 trillion (USD137.6 billion) into the market last month through government bond purchases and reverse repurchase operations to meet end-of-year liquidity needs.

The PBOC said on Nov. 29 that it bought government bonds with a face value of CNY200 billion (USD27.5 billion) and carried out CNY800 billion worth of three-month outright reverse repos.

Both are monetary policy tools newly introduced by the PBOC, on top of the regular seven-day reverse repos and the medium-term lending facility. In October, the PBOC carried out the first outright reverse repo operation, worth CNY500 billion.

With the latest injection, the PBOC aims to provide support for local governments, which tend to need more liquidity at year-end and in the run up to the Chinese New Year holiday, a banking industry insider told Yicai.

China set out new measures last month to ease the debt pressure on local governments, including allowing them to sell CNY6 trillion of bonds to swap out existing hidden debts.

Furthermore, CNY800 billion in new local government bonds will be allocated annually over the next five years, starting from this year, to sort out the hidden debt issue. The two measures are aimed at tackling a debt burden estimated at CNY10 trillion (USD1.38 trillion).

The PBOC has been easing back on the MLF while stepping up use of its new tools. Last month, it carried out a CNY900 billion one-year MLF operation, as CNY1.45 trillion in MLF loans came due, marking a net withdrawal of CNY550 billion.

The likelihood that the PBOC will cut the reverse requirement ratio in the near future has increased, according to Wen Bin, chief economist at China Minsheng Bank, given that December is a peak period for local governments’ debt swap operations. Also, interbank market funds may face a seasonal dip at year-end, he pointed out. 

Editors: Dou Shicong, Tom Litting