PBOC Pulls $129 Billion in Biggest Weekly Withdrawal Since 2013

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The Shift in Chinese Policy and Market Sentiment
  • Money-market rates hold ground as RRR cut helps fill gap
  • Central bank doesn't want excessive liquidity, Huachuang says

China’s central bank drained the most funds from the financial system in three years, mopping up excess cash after a reserve-requirement ratio cut earlier this week boosted liquidity.

The People’s Bank of China pulled a net 840 billion yuan ($129 billion) in the five days through Friday, data compiled by Bloomberg show. While that was the biggest weekly withdrawal since February 2013, money-market rates barely reacted with the RRR reduction releasing an estimated 685 billion yuan into the banking system. The PBOC kept its open-market seven-day interest rate unchanged at 2.25 percent on Friday.

The seven-day repurchase rate, a benchmark gauge of interbank funding availability, was little changed Friday and fell three basis points for the week to 2.27 percent as of 4:30 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was little changed at 2.3 percent.

“The PBOC didn’t seem to plan to add excessive liquidity,” said Qu Qing, a Beijing-based analyst at Huachuang Securities Co. “Keeping the interest rate of the operations unchanged also indicated its intention to maintain prudent monetary policy. The RRR cut is only replacing the huge amount of reverse repos due this week.”

The central bank auctioned 50 billion yuan of seven-day reverse repos on Friday, bringing this week’s total sales to 320 billion yuan. That’s less than a record 1.16 trillion yuan of contracts maturing this week that will drain funds from the financial system, data compiled by Bloomberg show. The PBOC injected an unprecedented 1.7 trillion yuan via such operations in the five weeks running up to the Lunar New Year holidays.

The yield on government notes due January 2026 rose four basis points from a week ago and was unchanged at 2.92 percent, National Interbank Funding Center prices show.

— With assistance by Helen Sun

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