PBOC Injects Most Cash Since September in Open-Market Operations

Updated on
  • China trying to comfort investors after stock rout: analyst
  • Central bank injects 130 billion yuan using reverse repos

China’s central bank conducted the biggest reverse-repurchase operations since September, adding funds to the financial system after money-market rates surged and equities slumped.

The People’s Bank of China offered 130 billion yuan ($19.9 billion) of seven-day reverse repos on Tuesday at an interest rate of 2.25 percent. The monetary authority suspended the operations in the last auction window on Dec. 31, ending a six-month run of cash injections that helped drive borrowing costs lower in an economy estimated to grow at the slowest pace in more than two decades.

Nicholson Says Rate Cut Coming Before Chinese New Year

The overnight repurchase rate, a gauge of interbank funding availability, fell one basis point to 2.01 percent as of 4:30 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. It climbed to 2.12 percent on Dec. 31, the highest since April.

“Liquidity is tight in the market and the PBOC has to react to that,” said Frances Cheung, Hong Kong-based head of rates strategy for Asia ex-Japan at Societe Generale SA. “Capital outflows may keep liquidity tight and there is likely to be more easing from the PBOC.”

Easing, Stocks

The monetary authority cut the reserve-requirement ratio for major lenders by 250 basis points in 2015 to 17.5 percent, and is forecast to further lower it to 15 percent by the end of this year, according to a survey last month. A central bank research bureau economist last week damped speculation reserve requirements will be eased, saying that any adjustments should avoid causing too much volatility to short-term rates.

Stock trading in China was halted on the first trading day of the year after a 7 percent selloff in the CSI 300 Index triggered circuit breakers. The gauge closed 0.3 percent higher Tuesday.

“By offering such a big amount of reverse repos, the PBOC is also trying to comfort the market following the equities slump yesterday,” said Liu Dongliang, a senior analyst at China Merchants Bank Co.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was little changed at 2.34 percent, data compiled by Bloomberg show. Sovereign bonds declined, with the 10-year yield rising two basis points to 2.91 percent, according to National Interbank Funding Center prices.

— With assistance by Helen Sun

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