China Central Bank Makes Record $46 Billion Injection Into Money Markets
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The People’s Bank of China (PBOC), China’s central bank, added a record 290 billion yuan ($45.96 billion) into its financial system on Tuesday, reported Reuters, through a series of reverse bond repurchase agreements aimed at easing a potential cash crunch coming from an upcoming week-long holiday.
The People’s Bank of China (PBOC), China’s central bank, added a record 290 billion yuan ($45.96 billion) into its financial system on Tuesday, reported Reuters, through a series of reverse bond repurchase agreements aimed at easing a potential cash crunch coming from an upcoming week-long holiday.
According to Bloomberg, the PBOC conducted 190 billion yuan of 28-day reverse repos and offered 100 billion yuan of 14-day contracts – making it the largest single-day gross cash injection by the central bank on record.
Furthermore, China’s monetary authority also auctioned 40 billion yuan of six-month treasury deposits to commercial banks on behalf of the Ministry of Finance at a yield of 4.32 percent, while the central bank kept its yields on 28- and 14-day reverse repos unchanged at 3.6 percent and 3.45 percent respectively.
China’s financial markets will be shut from October 1-5 for its National day and mid-autumn holidays. A similar cash inflow by the PBOC happened this January when it injected 352 billion yuan to ease liquidity ahead of the Spring Festival holiday.
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[quote]“Record amounts of reverse repos are to meet the surge in cash demand before the quarter-end and the holidays,” told Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender, to Bloomberg. “As the central bank steps up adding funds through reverse repos, it’s unlikely to cut the reserve ratio this month.”[/quote]Reuters also claimed that another reason for the large cash injection could be due to the fact that some maturing bills, repos and reverse repos are set to effect a net drain of 105 billion yuan this week.
When deducted from the record cash injection, it would mean that the PBOC would have added a net of at least 185 billion yuan for the week, with some traders saying that the PBOC is likely to inject even more cash on Thursday.
[quote]”Demand for funds will be big, so the amount of Thursday’s reverse repo should be huge,” told a trader at a Chinese bank in Beijing to Reuters.[/quote]“Banks now have a strong need for liquidity,” added He Yifeng, a senior bond analyst at Hongyuan Securities to the Shanghai Daily.
“They are preparing for more cash withdrawals and purchases of foreign currencies during the coming holiday, while they also need to keep more deposits” for book-keeping purposes, He said.
Some analysts also say that the large cash injection could be used to boost the China economy, besides improving liquidity. A large fund injection can often lower money market rates in China, thereby reducing financing costs by companies to help them weather the economic slowdown.
On Tuesday, the PBOC also vowed to “fine tune” its monetary policy in order to support the economy and control inflation.
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“We will continue to implement the prudent monetary policy, make it more targeted, flexible and forward-looking, while fine-tuning it according to the economic situation development,” the central bank said in a statement, as cited by the China Daily.
[quote]”The current economic and financial operations show signs of stabilizing at a slower pace and the consumer price situation is basically stable… [But] global economic growth remains weak and we will closely watch the impact of recent rescue and stimulus policies taken by the European Union and the United States,” it added.[/quote]
