PBOC Reins in Cash Injections in Sign Money Rate Is Near Target

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China’s central bank reduced the amount of cash added to the financial system via open-market operations, a sign short-term lending rates are as low as it wants them to be.

The People’s Bank of China conducted 20 billion yuan ($3.2 billion) of seven-day reverse-repurchase agreements on Tuesday, less than the 50 billion yuan that matured. The seven-day repo rate, a gauge of cash availability in the banking system, opened at 2.50 percent for a sixth straight day.

The PBOC began pumping in funds via reverse-repo auctions on June 25 after halting open-market operations for two months as it sought to meet quarter-end demand for cash. The monetary authority cut benchmark interest rates and lowered reserve-requirement ratios for selected banks about two weeks ago to boost liquidity amid a stock market rout that led to trading suspensions for about half of the listed companies.

“Reverse-repo operations are less necessary as the key money rate is 2.5 percent, a desirable level for the PBOC,” said Chen Peng, a fixed-income analyst at Fortune Securities Co. in Shenzhen. “Now that the stock market has stabilized, and the mid-year funding demand spike is behind us, the PBOC could halt reverse-repo sales in coming weeks.”

The M2 measure of money supply rose 11.8 percent in June from a year earlier, while aggregate financing was 1.86 trillion yuan, both exceeding forecasts, data from the central bank showed Tuesday. Foreign-exchange reserves dropped to $3.69 trillion, the lowest since September 2013.

The seven-day repo rate fell four basis points to 2.49 percent in Shanghai, a weighted average from the National Interbank Funding Center shows.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose nine basis points to 2.57 percent and earlier reached 2.6 percent, the highest since June 25, according to data compiled by Bloomberg. The yield on government bonds due April 2025 climbed three basis points to 3.56 percent, the highest since July 3, National Interbank Funding Center prices show.

— With assistance by Helen Sun

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