PBOC Finishes Draining Funds It Injected Before Lunar New Year

  • Central bank withdraws 1.6 trillion yuan in four weeks
  • Ample liquidity in banking system for now, analyst says

China’s central bank used open-market operations to pull funds from the financial system for a fourth consecutive week, all but mopping up a record amount of cash injected before the Lunar New Year holidays.

The People’s Bank of China drained a net 205 billion yuan ($31.5 billion) through reverse-repurchase agreements, taking a four-week withdrawal to 1.58 trillion yuan. That’s close to the net injections of 1.69 trillion yuan before last month’s festival.

“There’s ample liquidity in the banking system now,” said Yu Yuanbo, an analyst at Bank of Dongguan Co. in Guangdong province. “The situation will probably continue in the next couple of weeks, and the central bank will largely maintain a neutral stance in short-term liquidity management.”

The central bank auctioned 20 billion yuan of seven-day reverse repos on Friday, bringing the total injections this week to 115 billion yuan, versus 320 billion yuan of such contracts maturing, data compiled by Bloomberg show.

The seven-day repo rate, a benchmark gauge of interbank funding availability, was little changed for the week and the day at 2.28 percent as of 4:30 p.m. in Shanghai, according to weighted average prices from the National Interbank Funding Center.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, dropped two basis points from a week ago to 2.28 percent, data compiled by Bloomberg show. It dropped one basis point on Friday.

The yield on sovereign notes due January 2026 fell six basis points from March 4 to 2.86 percent, according to National Interbank Funding Center prices. The yield was little changed on Friday.

— With assistance by Helen Sun

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