PBOC Seen Averting Cash Shortage as $155 Billion Leaves Market

  • Central bank may extend loans, ease reserve ratio: survey
  • Monetary authority said to gauge MLF demand from some lenders

China’s central bank will probably roll over medium-term loans to avoid a shortage of cash as maturing contracts, tax payments and bank reserve requirements drain more than 1 trillion yuan ($155 billion) from the financial system this month, according to a survey of traders and analysts.

QuickTake The People’s Currency

The People’s Bank of China will extend the maturities of some of 551 billion yuan of loans provided via the Medium-term Lending Facility due next week, according to all 14 respondents in the April 8-11 poll, while four said the monetary authority may also reduce the ratio of deposits that lenders have to hold in reserve. The PBOC offered MLF on Wednesday at rates unchanged from its last sale on Feb. 19, people with knowledge of the matter said.

“The PBOC’s attitude is still to stabilize the market, and ensure liquidity,” said Guo Wei, a Shanghai-based bond trader at Bank of Nanjing Co. “The central bank will probably roll over part of the MLFs due, and if the tax payments are particularly large, it may even give more funds.”

Policy makers are trying to keep borrowing costs from rising as they contend with the slowest economic growth in a quarter century and capital outflows that drove the yuan to a five-year low in January. The PBOC has increased its hold on interbank liquidity, raising the frequency of its open-market operations and restricting the one-week interbank borrowing cost to between 2.25 percent and 2.5 percent over the past five months to indicate to investors where it wants interest rates to be.

Apart from the MLFs, liquidity will be affected also by more than 400 billion yuan of corporate taxes, as well as 200 billion yuan of reserve requirements deposited earlier with the central bank, according to Huachuang Securities Co. The PBOC should adjust the reserve-requirement ratio gradually in accordance with China’s international balance of payments and to meet the demand of macro-economic controls, Ma Jun, chief economist at the monetary authority’s research bureau, wrote in a working paper on April 8.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, rose three basis points to 2.41 percent as of 4:39 p.m. in Shanghai on Wednesday, data compiled by Bloomberg show. It earlier climbed to 2.42 percent, the highest since November.

The seven-day repurchase rate, a gauge of interbank funding availability, advanced three basis points to 2.34 percent, according to a daily fixing from the National Interbank Funding Center.

The yield on government bonds due January 2026 climbed three basis points to 2.94 percent, the highest since March 8, according to National Interbank Funding Center prices. The Ministry of Finance earlier issued five-year debt at the highest cost in six months.

Currency Market

The yuan fell 0.04 percent to 6.4694 a dollar in Shanghai, according to China Foreign Exchange Trade System prices, while the offshore rate declined 0.1 percent to 6.4805 in Hong Kong. The currency’s one-month implied volatility, a measure of expected swings used to price options, fell to a five-month low of 4.02 percent.

The PBOC raised the yuan’s daily reference rate by 0.04 percent to 6.4591 a dollar. A Bloomberg replica of the CFETS RMB Index, which tracks the yuan against 13 exchange rates, dropped to 97.3, the least since November 2014.

— With assistance by Yuling Yang, and Xize Kang

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