China's Central Bank Steps Up Cash Injections Amid IPO Restart

  • Tuesday's reverse-repo amount almost double last week's total
  • Money market tightens slightly on IPOs: China Merchants Bank

China’s central bank stepped up cash injections via open-market operations as a resumption of new share sales drove demand for funds.

The People’s Bank of China auctioned 50 billion yuan ($7.8 billion) of seven-day reverse-repurchase agreements on Tuesday, more than the total of 30 billion yuan last week. Twenty-eight initial public offerings, including 10 this week, will lock up 3.4 trillion yuan of funds, according to a Bloomberg survey. Subscriptions that started on Monday drove the overnight money rate to the highest level in a month.

“This is a preemptive measure by the central bank to ensure liquidity is ample during the IPOs,” said Wan Zhao, a Shanghai-based analyst at China Merchants Bank Co. “The money market tightened slightly yesterday, and the PBOC wants to maintain the stability.”

The one-day repurchase rate, a gauge of interbank funding availability, fell one basis point to 1.77 percent as of 4:42 p.m. in Shanghai, according to the National Interbank Funding Center prices. The overnight repo rate traded on the Shanghai Stock Exchange jumped 186 basis points, the most since Nov. 6, to 2.39 percent.

The real challenge comes on Wednesday, when institutions need to borrow a lot of money to deposit funds, and then the liquidity crunch will ease on Friday, Frank Sun, a Shanghai-based analyst at CFETS-ICAP International Money Broking Co., wrote in a note on Monday.

The yield on the government bonds due October 2025 rose one basis point to 3.06 percent, according to data from the National Interbank Funding Center.

— With assistance by Helen Sun

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