The People’s Bank of China (PBoC) injected an increased money supply in January due to people needing cash-on-hand for the Spring Festival, explained PBoC president Zhou Xiaochuan at the NPC & CPPCC. During the March 4 morning event he said the bank tended to tighten the money supply following the Chinese Lunar New Year.

“The relevant data of February will come out soon,” Zhou said. “We should put January and February data together to discuss the liquidity condition.”

The new RMB loans in January surged to 1.07 trillion, and the total social financing (TSF) in the same period created a historic high of 2.54 trillion as well. Confronting presumptions of a likely credit flood, President Zhou may have felt the pressure. His remarks imply that the February credit may fall back tremendously.

Analysts have said that there are basically identical market expectations that the credit provision will be around 9 trillion yuan. From their point of view, the PBoC’s recently resumed repurchasing in the open market was to maintain the equilibrium of currency liquidity instead of tightening the liquidity.

As of Feb. 17, the new loans of the “big 4” state-owned banks in China in the month reached 250 billion yuan, far beyond the 180 billion yuan of last February.

It can be deducted from the above data that the size of February new loans will be considerable as well. Currently, most market participants expect that the new loans in February will be between 700 billion yuan and 800 billion yuan. In February 2012 the new RMB loans were 710.7 billion yuan. However, the Spring Festival of 2012 fell in January while this year it fell in February.

Macro analyst at China Development Bank Securities Du Zhengzheng said that the new loans in February were likely to total at least 750 billion yuan.

Senior analyst in the financial market department of Merchant Bank Liu Dongliang claimed that February new loans probably dipped due to the Spring Festival factor. But seen from the whole year, the money supply in the first quarter is expected to be the largest. In addition, the come-out of property curbing policies will probably bring huge affects to the financing demands of the whole financial system, which may be revealed in time-lag.

In correspondence to the sudden expansion of January credit, PBoC resolutely resumed repurchasing to retrieve liquidity.

“One factor can be that PBoC tended to make short-term liquidity relatively tight to urge banks contract credit,” said Du.

Since last December, PBoC kept supplying funds to the market through open market operations (OMOs). Hence the inter-bank interest rates were stable. The large credit provision in January showed that liquidity was not short among financial institutions such as banks.

Data shows that in the first two months of 2013, the PBoC withdrew a total 553 billion yuan of funds in the open market.

“The short-term interest rates climbed a lot as affected by PBoC’s OMOs last week,” said Liu. Considering that the growth of funds outstanding for foreign exchange in February will probably be high, “to conduct repurchase is to maintain the equilibrium, not to tighten the liquidity.”

He held the view as well that the quick growths of funds outstanding for foreign exchange in January and February are only individual cases. In the following months they may not be kept at such high levels. Hence, PBoC will likely pick up reverse repurchasing again to inject liquidity. However, it seems certain that PBoC won’t supply such great amount of funds as it did before the Spring Festival.