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China's Central Bank Pumps in Most Funds Since January

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  • Open-market operations inject net $75.4 billion this week
  • Not a good choice to think PBOC will ease, researcher says

China’s central bank used its open-market operations to boost the supply of cash in the financial system after demand driven by tax and dividend payments pushed the overnight money rate to a four-week high.

The People’s Bank of China added a net 40 billion yuan through reverse-repurchase agreements on Friday, bringing this week’s injections to 510 billion yuan ($75.4 billion) -- the most in six months. The monetary authority was also said to have added funds through some commercial lenders Wednesday.

The nation’s interbank funding costs have risen this week amid signs the government is in no hurry to let up on its efforts to reduce borrowing levels. Authorities will actively prevent and resolve systemic financial risks, and ramp up efforts to reduce leverage in the economy, the official Xinhua News Agency reported, citing President Xi Jinping at a high-profile conference last weekend.

To read more on China’s deleveraging drive, click here

“Even though some seasonal factors may fade away after July, liquidity conditions will continue to be relatively tight as the People’s Bank of China is determined to push ahead with deleveraging," said Chen Ji, a senior researcher at Bank of Communications Co. in Shanghai. "Some financial institutions are betting the central bank will ease monetary policy marginally and taking the chance to add leverage -- this is not a good choice."

The overnight repurchase rate, a gauge of interbank funding availability, rose 21 basis points this week through Thursday, climbing to 2.81 percent, the highest since June 22. The seven-day rate added 10 basis points to 2.85 percent. The contracts were at 2.74 percent and 2.91 percent, respectively, in Shanghai late Friday.

— With assistance by Tian Chen

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