PBOC Adds Funds, Cuts a Lending Rate to Prevent IPO Cash Squeeze

  • Share sales to restart this year after being suspended in July
  • PBOC cuts SLF interest rates offered to small local banks

The People’s Bank of China added cash to the financial system using a short-term lending tool and cut the rate on a funding facility for smaller banks, preempting a possible liquidity squeeze as a freeze on new share sales draws to an end.

The PBOC offered 20 billion yuan ($3.1 billion) of seven-day reverse-repurchase agreements in Thursday’s open-market operations, double the 10 billion yuan conducted at the last seven of its twice-weekly auctions. The central bank also lowered the overnight and seven-day rates on its Standing Lending Facility for local financial institutions to 2.75 percent and 3.25 percent, respectively, according to a statement on its official microblog.

The China Securities Regulatory Commission said this month that 28 companies were in the process of holding initial public offerings and that these will be allowed to proceed by year-end. The last new share sales in June drove money-market rates higher as subscriptions tied up funds, though new rules which will take effect next year mean investors applying for stocks will no longer be required to deposit funds equivalent to the amount they are seeking.

The increase in reverse repos “is a gesture from the central bank to tell the market it will smooth out any liquidity tightening,” said Huang Hai, Beijing-based deputy head of research at SDIC CGOG Futures Co., a unit of State Development & Investment Corp. “The amount is very small and won’t bring too much difference to the interbank market, but the purpose is to send a clear message.”

The seven-day repurchase rate, a gauge of interbank funding availability, closed three basis points higher at 2.30 percent , a weighted average from the National Interbank Funding Center shows. It opened at 2.25 percent for an 18th consecutive day, matching the rate on the central bank’s reverse repos in open-market operations. The rate jumped 24 basis points in the June 2-4 period, the biggest three-day increase since February, as subscriptions for 23 IPOs boosted demand for funds.

The onshore cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was little changed at 2.40 percent in Shanghai, data compiled by Bloomberg show. The yield on 10-year government bonds rose one basis point to 3.18 percent in Shanghai, data from the National Interbank Funding Center show.

The one-week Hong Kong Interbank Offered Rate for yuan fell six basis points to 4.58 percent, trimming this week’s jump to 179 basis points. China’s central bank told some onshore banks to stop offering cross-border financing to offshore lenders recently, according to people familiar with the matter.

— With assistance by Helen Sun

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