PBOC Lowers Cash Injections as It Keeps Liquidity on Tight Leash

  • Central bank may drain funds in operations this week: analyst
  • Net of medium-term loans made in April at 164 billion yuan

The People’s Bank of China reduced the amount of cash offered in the money markets, keeping short-term liquidity on a tight leash after it provided medium-term loans for the third time in a month.

The central bank auctioned 120 billion yuan ($18.5 billion) of seven-day reverse-repurchase agreements on Wednesday, the smallest injection in a week, taking the day’s net withdrawal via open-market operations to 130 billion yuan. It has added 70 billion yuan more than it drained so far this week, data compiled by Bloomberg show. The PBOC made a net 164 billion yuan of loans to commercial lenders through its Medium-Term Lending Facility in April.

“Starting from yesterday, the cumulative injections have helped to alleviate the tightness in the interbank market,” said Chen Peng, a Shenzhen-based Fortune Securities Co. analyst. “It’s very likely the PBOC will have a net withdrawal in open-market operations this week. Otherwise, it would be too difficult to roll over so much in reverse repo contracts.”

The central bank has refrained from lowering banks’ reserve-requirement ratios, relying instead on short-term tools to manage liquidity amid a surge in credit growth and higher inflation pressure. More than 1 trillion yuan of funds will leave the financial system in April because of maturing MLFs, tax payments and RRR adjustments, according to Huachuang Securities Co. estimates.

China’s broadest measure of new credit surged to 2.34 trillion yuan last month, exceeding the median forecast for 1.4 trillion yuan in a Bloomberg survey. Consumer prices in March rose 2.3 percent from a year earlier, as food prices surged and factory-gate deflation moderated.

The seven-day repo rate, a benchmark gauge of interbank funding availability, jumped 11 basis points to 2.45 percent at the close in Shanghai, according to National Interbank Funding Center prices. The cost of one-year interest-rate swaps, the fixed payment to receive the seven-day repo rate, increased three basis points to 2.62 percent as of 5:44 p.m. local time, data compiled by Bloomberg show.

The PBOC on Wednesday strengthened the yuan’s reference rate by 0.07 percent to 6.4837 to a dollar. The currency traded in Shanghai fell 0.08 percent to 6.4945, while the offshore yuan dropped 0.06 percent to 6.5066.

— With assistance by Helen Sun

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