PBOC Scales Back Open-Market Injections as Money Rates Steady

Updated on
  • Reserves-ratio cut releases an estimated 650 billion yuan
  • Seven-day repo rate has been in tight range this month

The People’s Bank of China reduced the level of cash injections in open-market operations as money-market rates remained steady after a cut in banks’ reserve requirements released funds into the economy.

The central bank sold 50 billion yuan ($7.8 billion) of seven-day reverse-repurchase agreements that add funds on Tuesday at 2.35 percent, less than the 150 billion yuan of such contracts it auctioned a week ago, data compiled by Bloomberg show. The benchmark seven-day repo rate, a gauge of interbank funding availability, rose one basis point to 2.36 percent as of 4:41 p.m. in Shanghai, a weighted average from the National Interbank Funding Center shows. It’s stayed in an eight-basis point range this month.

The reserve-ratio reduction, which took effective Sept. 6, released 650 billion yuan, based on Bloomberg Intelligence research. Yuan positions at the PBOC and financial institutions fell the most on record in August, according to central bank data. The drops add to evidence that the monetary authority intervened to support the currency as a devaluation spurred outflows. The country’s foreign-exchange reserves tumbled by a record $93.9 billion last month, official data show.

“The RRR cut and the reverse repos have helped to sterilize the liquidity drain due to the currency-market intervention,” said Yan Yan, a Shanghai-based analyst at China Guangfa Bank Co. “We’re cautiously optimistic that the central bank will manage to keep the seven-day repo rate at 2.5 percent.”

A new method of calculating the reserves requirement, effective Tuesday, will give commercial banks more flexibility to manage deposits.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose one basis point to 2.46 percent. The yield on the sovereign bonds due July 2025 declined three basis points to 3.31 percent, data from the National Interbank Funding Center show.

— With assistance by Helen Sun

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