PBOC Steps Up Injections as Money Rate Climbs to Five-Week High

The People’s Bank of China added the most cash to the money market in a year as increasing demand for funds before the Lunar New Year holidays drove the overnight interbank rate to a five-week high.

The central bank injected a net 205 billion yuan ($32.8 billion) this week, the most since January 2014, when the festival break started Jan. 31. The cash shortage has been aggravated as investors sought funds for initial public share offerings ahead of the week-long holiday that begins Feb. 18 this year. The PBOC said Wednesday it will expand a lending facility nationwide to ensure money rates remain stable.

The overnight repurchase rate, a gauge of interbank funding, rose five basis points to 3.06 percent as of 5:27 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That’s the highest since Jan. 5. The rate climbed 14 basis points yesterday, the most this year.

“The IPO impact is waning, and funding costs should be able to come down gradually in the next couple of days with the help of injections,” Guotai Junan Securities Co. analysts led by Xu Hanfei wrote in a note. “Market expectations are that money rates will be able to drop significantly after the holiday.”

The PBOC injected a total of 195 billion yuan in the three weeks through Feb. 6, data compiled by Bloomberg show. That compares with 450 billion yuan in the two weeks before the holiday last year. The central bank sold 80 billion yuan each of 21- and 14-day reverse-repurchase agreements Thursday, keeping yields unchanged at 4.4 percent and 4.1 percent, respectively, according to a statement on its website.

Some 24 planned IPOs are estimated to lock up 2.05 trillion yuan this week, a Bloomberg survey of brokerages shows.

Lending Facility

The Shanghai Stock Exchange’s overnight repo rate jumped 12.8 percentage points to 16.2 percent. The seven-day contract fell 1.45 percentage points to 8.14 percent.

PBOC branches nationwide will provide loans to smaller financial institutions if needed via a standing-lending facility, expanding a trial in 10 provinces and cities that started last year, according to a statement on its website Wednesday. The move is aimed at meeting pre-holiday demand for funds and ensuring stability in the money markets, the central bank said.

The 10-year government bond yield fell two basis points, or 0.02 percentage point, to 3.37 percent, according to National Interbank Funding Center prices.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose four basis points to 3.21 percent, data compiled by Bloomberg show.

— With assistance by Helen Sun

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