PBOC Drains Most Funds Since June Even as Money Costs Climb

  • China’s central bank withdraws $50 billion this week
  • One-week Shibor extends nine-day advance to two-month high

China’s central bank pulled the most funds from the financial system in almost two months this week, adding to concerns over tight liquidity ahead of quarter-end demand.

The People’s Bank of China refrained from offering reverse-repurchase agreements for the second day in a row Friday, which resulted in a withdrawal of funds because of maturities. The authority has drained 330 billion yuan ($50 billion) in open-market operations this week, the most since the five days through June 30.

The withdrawals come at a challenging time for the money market, with banks traditionally hoarding cash to satisfy quarter-end regulatory checks. Some signs of stress are already beginning to show, with lenders being forced to pay the highest costs since 2014 for three-month funds and borrowing costs in Shanghai rising. The PBOC said Friday that liquidity is at a “moderate” level, and that fiscal spending, local government deposit auctions and net release of required reserves will help offset the maturities of reverse repos.

“The PBOC looks to be resolute and transparent to keep the market tightly balanced,” said Hong Ben, an analyst at Yinzhou Bank. “Only so, it can achieve the goal of curbing leverage in the financial system.”

The one-week Shanghai Interbank Offered Rate climbed to 2.91 percent, the highest since June 23, according to the National Interbank Funding Center. The overnight weighted average repurchase rate fell one basis point to 2.85 percent as of 5:48 p.m. in the Chinese city, which the seven-day cost was at 2.96 percent. The 20-day moving average of the overnight repurchase rate is at 2.82 percent, near the highest level since April 2015.

The yield on 10-year government bonds rose one basis point to 3.68 percent, up four basis points from a week ago, data compiled by Bloomberg show. The one-year bond declined for the day, with the yield rising one basis point.

— With assistance by Helen Sun

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