China's Money-Market Operations Inject Most Cash in Seven Weeks

  • Convertible bond sale, quarter-end spur demand for cash
  • PBOC will step up injections if needed next week: analyst

China’s central bank added the most money to the financial system through open-market operations this week since before last month’s Lunar New Year holiday as a convertible bond sale and lenders’ quarter-end deposit needs spurred demand for funds.

The People’s Bank of China injected a net 180 billion yuan ($27.6 billion), the most since the period ended Feb. 5, data compiled by Bloomberg show. A March 18 bond sale by Jiangsu Jiangnan Water Co. locked up an estimated 200 billion yuan, according to Huachuang Securities Co. Commercial lenders need deposits at the end of each quarter to meet regulatory checks, while interbank borrowing costs tend to rise in the March-April period as banks lodge tax payments with the PBOC. The benchmark seven-day money rate climbed to a six-week high on March 23 before retreating.

“The market was a bit tight earlier this week, when the money was frozen due to convertible bond sales - it then eased since Thursday on accumulative PBOC injections,” said Lin Yijian, an analyst at Guangzhou Rural Commercial Bank Co. “The market will face the challenge for quarter-end demand next week, but the central bank will step up injections if necessary.”

The PBOC auctioned 30 billion yuan of seven-day reverse-repurchase agreements on Friday, the smallest daily offering this week, and kept the interest rate unchanged at 2.25 percent. Reverse repos totaled 380 billion yuan for the week, while 200 billion yuan of such contracts matured, data compiled by Bloomberg show.

Borrowing Costs

The seven-day repo rate, a gauge of interbank funding availability, fell two basis points to 2.29 percent as of 4:30 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. The central bank has restricted the one-week interbank borrowing cost to between 2.25 percent and 2.5 percent over the past five months, using the measure to indicate to the market where it wants interest rates to be. The PBOC has been conducting open-market operations daily since Jan. 29 in an effort to strengthen its influence on interest rates.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose two basis points from a week earlier to 2.30 percent on Friday.

— With assistance by Helen Sun

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