China Central Bank Resumes Reverse Repo Sales After Six-Day Halt

  • PBOC revives cash-adding tool as $153 billion set to come due
  • Any withdrawals will be gradual to avoid crunch, analyst says

PBOC Resumes Selling Reverse-Repurchase Agreements

China’s central bank restarted the use of an instrument that adds cash to the financial system, helping ease liquidity concerns before $153 billion of funds come due this week.

The monetary authority sold a total 100 billion yuan ($14.5 billion) of reverse-repurchase agreements, the first auction after a six-day pause, a statement posted on its website showed. While the open-market operations resulted in a net withdrawal of 90 billion yuan because of maturing contracts, the resumption signals that policy makers don’t want a sudden tightening of money supply, according to Bank of Tokyo-Mitsubishi UFJ (China) Ltd.

The People’s Bank of China last week allowed 625 billion yuan of reverse repos to mature, mopping up cash after adding record funds in the days before the week-long Lunar New Year holidays. Some 900 billion yuan of the contracts are set to mature this week, as well as 151.5 billion yuan of loans under the Medium-term Lending Facility, data compiled by Bloomberg show. That adds up to 1.05 trillion yuan, or $153 billion.

“The PBOC restarted the use of reverse repos to stabilize market sentiment because large maturities are on the way,” said Li Liuyang, a Shanghai-based market analyst at Bank of Tokyo-Mitsubishi UFJ (China). “The net result will probably continue to be a withdrawal this week, but the pace will be controlled to avoid any crunch. We also expect it to conduct MLF, given the maturities.”

The PBOC sold 20 billion yuan of seven-day reverse repos, 30 billion yuan of 14-day contracts and 50 billion yuan of 28-day loans. The rates were unchanged from the previous sale at 2.35 percent, 2.50 percent and 2.65 percent, respectively. This is the first auction after the PBOC increased the costs of such funds by 10 basis points on Feb. 3, following the Lunar New Year holidays.

China’s benchmark seven-day repo rate, a gauge of interbank funding availability, rose two basis points to 2.44 percent on Monday, according to weighted average prices. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, declined three basis points 3.35 percent.

Bonds were little changed, with the yield on 10-year sovereign debt at 3.43 percent, according to National Interbank Funding Center prices.

— With assistance by Helen Sun

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