China’s Central Bank Boosts Injections to the Most in Two Months

Updated on
  • Corporations’ tax bills could reach 600 billion yuan, ANZ says
  • Liquidity also getting tighter ahead of Lunar New Year holiday
Photographer: Qilai Shen/Bloomberg

China’s central bank boosted injections via open-market operations to the most in two months to counter seasonal tightening of liquidity.

The People’s Bank of China pumped in a net 270 billion yuan ($42 billion) on Tuesday, as sales of reverse-repurchase agreements more than offset maturities. That’s the most since Nov. 16, data compiled by Bloomberg show. As much as 600 billion yuan is set to leave the financial system as lenders park corporations’ quarterly tax payments at the central bank, said David Qu, a market economist at Australia & New Zealand Banking Group Ltd. in Shanghai.

“This week can probably see the peak of such impact, and that’s why the central bank started to step up injections,” he said. While market-wide price indicators remain tepid, non-bank financial institutions and smaller lenders suffer much more than the biggest banks, Qu added.

Tuesday’s cash additions also came after the yield on 10-year China Development Bank bonds climbed to the highest level since September 2014 and nearly four weeks before the start of the Lunar New Year holiday, when liquidity tends to tighten. The yield on CDB debt due August 2027 rose one basis point to 5.06 percent on Tuesday, while that on 10-year sovereign notes was little changed.

The PBOC raised the interest rate of 63-day reverse-repos by five basis points to 2.95 percent on Tuesday, following a similar hike on shorter-term contracts in December. The central bank last used the longer lending tool in November.

— With assistance by Helen Sun

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