China's Central Bank Injects Most Funds in Almost Two Months

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PBOC to Inject Most Funds Since February
  • Little chance of reserve ratio cut in near term: BTMU analyst
  • Medium-term loans made this month less than amount maturing

The People’s Bank of China injected the most funds into the financial system via open-market operations in almost two months, stepping up efforts to avoid a seasonal cash squeeze.

The central bank auctioned 250 billion yuan ($38.7 billion) of seven-day reverse-repurchase agreements on Wednesday, the most since Feb. 26. This brings the net additions so far this week through open market operations to 255 billion yuan, data compiled by Bloomberg show. Maturing Medium-Term Lending Facility loans, tax bills and payments toward banks’ required reserves will drain more than 1 trillion yuan from the financial system in April, according to a Huachuang Securities Co. estimate.

The cash injections reflect the PBOC’s efforts to keep borrowing costs from rising too much, even as policy makers are signaling a waning appetite for further easing amid evidence the economy is stabilizing. There has been a wave of upgrades to growth forecasts by private economists.

“There’s almost no chance for the central bank to cut the reserve requirement ratio in the near term, given the improving economy and fast credit growth,” said Li Liuyang, Shanghai-based chief financial market analyst at Bank of Tokyo-Mitsubishi UFJ (China) Ltd. “So the PBOC has stepped up short-term cash injections to meet the seasonal demand, as a large amount of MLFs is due.”

Goldman Sachs Group Inc. wrote in a note this week that while they expect policy support for domestic investment to become “less aggressive,” authorities are projected to keep a “loosening bias.”

Goldman joined other banks in boosting their gross domestic product forecasts for China, with the gain for 2016 now seen at 6.6 percent, compared with 6.4 percent previously. UBS Group AG economists on Friday also boosted their 2016 forecast to 6.6 percent, from a previous estimate of 6.2 percent.

Watching Risks

The seven-day repo rate, a benchmark gauge of interbank funding availability, rose five basis points to a three-week high of 2.35 percent as of 4:38 p.m. in Shanghai, according to National Interbank Funding Center prices.

The central bank has made 448 billion yuan of loans to commercial lenders via MLFs this month, data compiled By Bloomberg show. That compares with 551 billion yuan of such contracts maturing in April.

While observing the need to continue supporting growth, China’s future policy operations will also pay attention to heading off macroeconomic risks, especially an over-expansion of corporate leverage, PBOC research bureau chief economist Ma Jun said in a briefing with local media late on Tuesday.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose four basis points to 2.49 percent, the highest since September, data compiled by Bloomberg show. Government bonds declined, with the yield on notes due January 2026 climbing one basis point to 2.93 percent, according to National Interbank Funding Center prices.

The Ministry of Finance auctioned 33 billion yuan of seven-year bonds at a yield of 2.94 percent Wednesday, according to a statement on the website of China Central Depository & Clearing Co. That compares with 2.85 percent in the secondary market on Tuesday and 2.86 percent in a Bloomberg survey before the sale.

— With assistance by Helen Sun

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