PBOC Drains Cash as Money-Market Rate Approaches Four-Week Low

Updated on

China drained funds from the financial system via money-market operations this week for the first time since April, adding to evidence that short-term borrowing costs are as low as policy makers want them to be.

The People’s Bank of China conducted 40 billion yuan ($6.4 billion) of reverse-repurchase agreements, which add cash, at 2.5 percent this week, while some 85 billion yuan of the contracts matured. This resulted in a net withdrawal of 45 billion yuan, data compiled by Bloomberg show.

“The underlying liquidity situation is neutral,” said Becky Liu, a senior rates strategist at Standard Chartered Plc in Hong Kong. “Especially with the equity market going down, people will have a higher conviction that the interbank rate will remain very accommodative.”

The seven-day repurchase rate, a gauge of liquidity, fell one basis point to 2.41 percent as of 4:41 p.m. in Shanghai, a weighted average shows. The rate, which declined as much as three basis points earlier, dropped to a four-week low of 2.36 percent Wednesday.

The PBOC started 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.

The cost of one-year interest-rate swaps, the fixed payment to receive the repo rate, fell five basis points to 2.51 percent, according to data compiled by Bloomberg.

The yield on sovereign bonds due April 2025 declined one basis point to 3.55 percent in Shanghai, National Interbank Funding Center prices show. The five-year yield dropped three basis points to 3.17 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE