PBOC Steps in to Cool Money Market as Rates Surge to April High

  • Central bank adds most cash in a month through reverse repos
  • Tax payments, yuan support caused shortage: Citi Securities

China’s central bank boosted the supply of cash in the financial system, helping push the benchmark money-market rate down from a three-month high.

The People’s Bank of China sold 180 billion yuan ($27 billion) of seven-day reverse-repurchase agreements, which inject funds into the banking system. That’s the biggest single-day offering of the contracts since June 29. This comes after the seven-day repurchase rate rose for six straight days, the longest run since August 2015, amid demand for tax payments and speculation that intervention to support the yuan was causing a shortage of the currency.

The one-week repo, a gauge of interbank funding availability, fell three basis points to 2.40 percent as of 4:31 p.m. in Shanghai, after touching a three-month high of 2.44 percent on Tuesday, according to weighted average prices from the National Interbank Funding Center.

“Factors including tax payments and currency-market stabilization make medium-sized and small lenders short of funds,” said Ming Ming, Beijing-based head of fixed-income research at Citic Securities Co. “The money market will probably remain tightly balanced, as the central bank would want to maintain a neutral monetary policy stance.”

Cash Demand

Corporate tax payments are estimated to drain about 400 billion yuan from the financial system this month as commercial lenders park funds at the central bank. Speculation that the PBOC bought yuan to support the exchange rate were boosted as the Chinese currency surged in afternoon trading last week.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose two basis points to 2.46 percent, data compiled by Bloomberg show. The yield on government notes due May 2026 rose two basis points to 2.81 percent, according to National Interbank Funding Center prices.

The monetary authority’s open-market operations resulted in a net addition of 105 billion as 75 billion yuan of the contracts matured. It brought this week’s net addition to 275 billion yuan, already more than last week’s injections, data compiled by Bloomberg show. 

— With assistance by Helen Sun

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