- Cut in lenders' reserve requirements took effect Sept. 6
- Reverse repos also injected cash in open-market operations
China’s benchmark money-market rate fell this week as a cut in lenders’ reserve requirements freed up funds and the central bank added cash via open-market operations.
The People’s Bank of China lowered the proportion of deposits financial institutions need to set aside as reserves effective Sept. 6, a move that Bloomberg Intelligence estimated would release 650 billion yuan ($102 billion) into the financial system. It also pumped in a net 80 billion yuan via auctions of reverse-repurchase agreements this week.
The seven-day repurchase rate, a gauge of funding availability in the banking system, declined seven basis points from Thursday to 2.35 percent in Shanghai, a weighted average from the National Interbank Funding Center shows. It was a down a similar amount for the week.
“Using various liquidity management tools, the PBOC is acting to make sure money rates stay at the appropriate level,” said Yan Yan, a Shanghai-based analyst at China Guangfa Bank Co. “They should be able to maintain stability as the central bank will pump in money whenever they see it tightening.”
The monetary authority is adding funds to the banking system to replace yuan bought as it intervenes to support the exchange rate. Propping up the currency led to a record $93.9 billion drop in the nation’s foreign-exchange reserves in August, when the PBOC announced a surprise devaluation that triggered the yuan’s steepest slide in two decades.
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose two basis points this week to 2.47 percent, Bloomberg-compiled data show. It fell one basis point Friday. The yield on sovereign bonds due July 2025 was steady for the day and the week at 3.35 percent, data from the National Interbank Funding Center show.
China’s broadest measure of new credit rose to 1.08 trillion yuan in August, compared with the median estimate in a Bloomberg survey for 1 trillion yuan, data from the central bank showed Friday. New local currency loans fell to 809.6 billion yuan, from 1.48 trillion yuan.
— With assistance by Helen Sun