PBOC Injects Most Funds in Two Weeks to Meet Demand for Cash

Updated on
  • Reverse repo auctions add to 448 billion yuan MLF loans made
  • About 1 trillion yuan seen leaving market in April: Huachuang

The People’s Bank of China used open-market operations to inject the most funds in two weeks, helping meet a seasonal spike in demand for cash that also saw the central bank provide two rounds of medium-term loans within a week.

The PBOC auctioned 90 billion yuan ($14 billion) of seven-day reverse-repurchase agreements on Tuesday, the most since April 1. That added to 448 billion yuan of loans made to commercial lenders via the Medium-Term Lending Facility over the past week. The seven-day repo rate, a gauge of interbank funding availability, rose one basis point to 2.30 percent as of 4:30 p.m. in Shanghai, after touching a two-week high on April 14, according to a weighted average from the National Interbank Funding Center.

Policy makers are keeping a lid on borrowing costs just as green shoots appear in the economy, with recent reports on manufacturing activity, retail sales, credit growth and industrial output all coming in better than expected. Maturing MLFs, tax payments and payments toward their required reserves will drain more than 1 trillion yuan from the financial system in April, Huachuang Securities Co. estimated this month.

“The PBOC is acting preemptively to fill in the gap as some funds are leaving the financial system,” Qu Qing, a Beijing-based bond analyst at Huachuang, said in an interview Tuesday. “The central bank’s timing of the MLF injection was meant to avoid any potential volatility in the interbank market.”

The PBOC has increased the frequency of its open-market operations this year to strengthen control over short-term money rates.

There are 551 billion yuan of MLF contracts coming due this week, data compiled by Bloomberg show. Apart from that, banks usually need to park with the central bank the tax payments they collect in the month following a quarter’s end and adjust the reserves they deposit at the central bank. Those figures were estimated by Huachuang at 400 billion yuan and 200 billion yuan, respectively.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, gained two basis points to 2.43 percent, data compiled by Bloomberg show.

— With assistance by Helen Sun

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