PBoC injects record cash into money market
2013-02-05 12:25:37
China's central bank pumped a record-high amount of cash into the financial system Tuesday in an bid to ease a liquidity crunch caused by commercial lenders' surging demand for funds to meet capital requirements.
Investors were expecting a massive injection of funds after the People's Bank of China withdrew cash from the system for two consecutive weeks and as interbank borrowing costs rose as banks have looked to secure funds to boost their loan-to-deposit ratios to meet month-end capital requirements.
Analysts said the central bank's latest move doesn't necessarily represent an intensifying effort to ease monetary conditions, given the recent signs the domestic economy may be gearing up for a gradual recovery and emerging concerns about inflationary pressures.
In fact, analysts said, the People's Bank of China is generally seen as preferring to keep interbank liquidity conditions steady, which means it may well drain cash from the system again next week.
The PBOC said Tuesday it offered 290 billion yuan ($33.16 billion) of seven-day reverse repurchase agreements, a short-term lending facility, at 3.35% during its regular open market operation. It also offered 105 billion yuan of 28-day reverse repos at 3.60%.
Tuesday's liquidity injection marks the largest single-day exercise on record, followed by the 290 billion yuan via reverse repo sale on Sept. 25.
The latest move puts the PBOC on track to achieve a net fund injection into the money market this week, snapping a two-week run of net fund withdrawals that totaled 291 billion yuan.
The cash injection came after funding conditions tightened over the past week as banks started preparing to meet their month-end capital requirements.
The interbank seven-day weighted average repo rate, a benchmark gauge of short-term funding costs, rose to a one-month-high of 4.32% late Monday, compared with 3.85% at the beginning of the month. It had fallen to 3.27% around noon after the injection.
"Nearly all banks have found it difficult to borrow money in the past few days as the end of the month has approached, and the central bank's move today is aiming to ease the liquidity squeeze," said Adam Chan, a bond analyst at Hongyuan Securities.
Still, given concerns about a rise in liquidity linked to quantitative easing in the U.S. and a potential rebound in inflation worldwide, the PBOC isn't expected to let liquidity stay excessively flush in the near term. "It's likely to resume a net fund withdrawal next week, when banks have to repay a record weekly 475 billion yuan of reverse repos to the central bank," Mr. Chan said.
Indeed, Tuesday's move is a further signal that the central bank has become increasingly reliant on short-term liquidity management tools such as reverse repos, and it remains hesitant to use more aggressive monetary easing in the face of a weakening economy, such as reducing the amount of money banks have to keep on reserve, partly because of concerns over resurgent inflationary pressures, analysts said.
The central bank will also likely offer a much smaller amount of reverse repos at its open market operation on Thursday, as demand for cash is poised to fall notably after the month ends on Wednesday, said a Shanghai-based trader with a local bank.
This week, 10 billion yuan of bills and 199 billion yuan of reverse repos mature, meaning banks will have to repay 189 billion yuan to the central bank.