PBOC Drains Cash First Time Since October as IPO Funds Return

  • Central bank withdraws a net 50 billion yuan this week
  • HSBC, Barclays see December cut in reserve-ratio requirements

The People’s Bank of China drained funds via open-market operations for the first time since October as cash that was frozen for new share sales moved back into the financial system.

The central bank withdrew a net 50 billion yuan ($7.8 billion) this week, with maturing contracts outstripping injections. Initial public offerings by 10 companies between Nov. 30 and Dec. 2 locked up an estimated 1 trillion yuan, according to a Bloomberg survey.

“The impact of IPOs on liquidity was short-lived and availability of funds has been better than expected,” said Frank Sun, an analyst at CFETS-ICAP in Shanghai. “As the central bank hasn’t stepped up injections in today’s operations, it signals the PBOC may use other tools to support the liquidity.”

Another 10 new share offerings may tie up more than 3 trillion yuan starting on Friday, CFETS-ICAP forecasts. The seven-day repurchase rate, a gauge of interbank funding availability, climbed six basis points to 2.35 percent in Shanghai. It is up from 2.31 percent at the end of last week, when it closed little changed from Nov. 29.

China’s foreign-exchange reserves declined last month to the lowest level since February 2013, suggesting capital outflows worsened. HSBC Holdings Plc and Barclays Plc forecast the PBOC will cut reserve-ratio requirements again before year-end, according to research reports on Wednesday.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was steady at 2.31 percent.

— With assistance by Helen Sun

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