PBOC Takes In Most Cash in Two Years as Money-Market Rates Fall

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How PBOC Pumping Money Into Markets Impacts Investors
  • Open-market operations drain net 290 billion yuan on Thursday
  • Benchmark seven-day repurchase rate slips to two-month low

China’s central bank drained the most funds from the financial system in two years, mopping up excess cash from the financial system after flooding lenders with funds in the run-up to last week’s Lunar New Year holiday.

The People’s Bank of China took in a net 290 billion yuan ($44 billion) via its open-market operations as 80 billion yuan of reverse-repurchase agreements were auctioned and 370 billion yuan matured. It’s now taken back 395 billion yuan of the 1.7 trillion yuan injected via the contracts over the five weeks leading up to the holiday that began Feb. 7. Demand for cash surges ahead of the break as people hoard money to pay for gifts, trips and celebrations.

“As cash returns to the banking system after the holidays, the demand for PBOC injections declined,” said Yan Yan, a Shanghai-based analyst at China Guangfa Bank Co. “It’s no surprise the central bank is starting to take back money it previously provided.”

The seven-day repurchase rate, a gauge of interbank funding availability, dropped four basis points to 2.25 percent as of 4:30 p.m. in Shanghai, a weighted average price from the National Interbank Funding Center shows. It fell to 2.19 percent earlier, the lowest since Dec. 15.

The PBOC has told banks it can provide cash through its Medium-term Lending Facility at 2.85 percent for six-month loans, down from 3 percent, according to a person with direct knowledge of the matter. The one-year borrowing rate would be eased to 3 percent from 3.25 percent, according to the person, who asked not to be identified because the plans aren’t public.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, fell two basis points to 2.30 percent, data compiled by Bloomberg show.

— With assistance by Helen Sun

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