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China central bank has not announced new MLF loans, as traders fret over cash squeeze

Reuters

SHANGHAI (Reuters) - China's central bank has not announced any new issue of medium-term lending facility (MLF) loans as of 6 p.m. (1000 GMT) on Thursday, adding to worries about a fierce cash squeeze in its money markets heading into a long holiday.

Two batches of medium-term lending facility loans (MLF) totaling 216.5 billion yuan ($31.53 billion) were due to mature on Wednesday and Thursday, according to Reuters calculations based on data from the People's Bank of China (PBOC).

But the central bank did not rollover Wednesday's maturing loans as markets had expected, spooking investors and sending short-term funding costs soaring to near 10-year highs.

The MLF is a supplementary policy tool the central bank uses to manage conditions and medium-term interest rates in the banking system and money markets.

Liquidity always tightens in China ahead of the Lunar New Year holiday, which starts on Jan. 27 and ends on Feb. 2 this year. Individuals and companies withdraw large sums of cash from banks for gifts and payments.

The PBOC usually pumps more funds into money markets to ensure markets have ample liquidity at such times, but some traders say its injections have barely been keeping up with heavier demand this year.

Higher funding costs have also helped spur gains in the ailing yuan <CNY=CFXS>, by forcing traders with short positions against the currency to bail out of their positions.

(Reporting by Winni Zhou and John Ruwitch; Editing by Kim Coghill)