SHANGHAI: China's central bank refrained from draining funds from the money market on Thursday, the first time it held off from open market operations in four months and signalling its intentions to keep borrowing costs low, traders said.
As a result, the People's Bank of China (PBOC) will inject 35 billion yuan ($5.7 billion) on a net basis into the interbank money market this week after pumping in a net 10 billion yuan last week.
On Tuesday, the PBOC cut the yield on the 14-day bond repurchase agreement (repo) for the fourth time this year to 3.2 percent, from 3.4 percent, which followed a surprise cut to benchmark lending rates on Friday to support the cooling economy.
"The absence of open market operations matches expectations because it is in line with PBOC's decision to cut interest rates," said a trader a state-owned bank in Shanghai.
She added Thursday's suspension was necessary given recent tightness in liquidity due to month-end factors as well as cash demand related to a series of initial public offerings.
The weighted average of the 14-day repo was at 3.8148 percent on Thursday, down from 3.9541 percent the previous day. It had hit a four-month high of 4.4547 percent on Friday.
The benchmark seven-day repo weighted average was at 3.2804 percent, down from 3.3200 percent on Wednesday.
Chinese banks rely on the interbank market to keep enough cash on hand to run ATMs, make loans, and repay investors in wealth management products, but insiders say they have abused the market at times, borrowing quick cash for short periods to fudge their balance sheets to meet regulatory requirements.
Traders say the PBOC has therefore increasingly relied on sending discreet signals through issuance amounts, tenors and official yields to encourage banks to take on more or less risk given economic conditions, and its moves have been watched by stock investors for signs of changes in monetary stance.
Comments
Comments are closed.