China injected a record 860 billion yuan ($138 billion) into the financial system using reverse-repurchase agreements this week to meet rising demand for cash before a weeklong holiday starts Feb. 11.
The People’s Bank of China injected 410 billion yuan using 14-day reverse repos today, after adding 450 billion yuan on Feb. 5. The overnight money-market rate climbed for an eighth day, the longest run of increases in almost a year. The Chinese New Year holiday is a period in which families exchange gifts, buy new clothes and get together for meals.
“The PBOC injection is in reaction to liquidity needs,” said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. “It is natural for cash demand to pick up before the Chinese New Year.”
The one-day repurchase rate, a gauge of interbank funding availability, rose two basis points, or 0.02 percentage point, to 3.65 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The rate increased as much as 49 basis points earlier to 4.12 percent, the highest since Oct. 29. The seven-day repo rate jumped 37 basis points to 4.10 percent today, the biggest gain this year.
The monetary authority offered the 14-day reverse repos at a yield of 3.45 percent, according to a trader at a primary dealer required to bid at the auctions.
China must be alert to changes in price-gain expectations and to imported inflation, the central bank said yesterday in its fourth-quarter monetary policy report. The costs of labor-intensive products, services and agricultural goods may rise persistently on slowing labor-supply growth, the PBOC said.
The one-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repo rate, was steady at 3.16 percent, according to data compiled by Bloomberg.