China’s central bank boosts liquidity through $45.96 billion injection

Beijing, China (4E) – The People’s Bank of China (PBOC) infused 290bn yuan ($45.96bn) into the financial system through reverse-repurchase agreements as the government seeks to address the tightening money supply ahead of the week-long holiday.

Since last week, liquidity in the banking system has been tight as lenders increase their demand for cash as they try to meet loan-to-deposit ratio requirements toward the end of the quarter. The inter-bank 7-day weighted average repo reached seven-month high on Monday. This rate is the benchmark for short-term funding costs.

The PBOC maintained the yields for the 14-day reverse repos at 3.45 per cent while the 28-day reverse repos at 3.6 per cent.

Financial markets in China will be closed from Oct. 1 to 5 as the entire country celebrates its mid-autumn and National day holidays.

The significant amount of liquidity injected by the central bank is seen by analysts not only as a move to boost the slowing economy but also another sign that the central bank is leaning toward the open-market system when implementing monetary policy. Analysts also feel that a cut in the banks’ reserve requirement ratio by the PBOC will not happen anytime soon.

To improve liquidity in the banking system, the central bank has now extended 2.238tn yuan worth of reverse repos since June.

Such fund injections could lower money market rates in China, thereby reducing financing costs by companies to help them weather the economic slowdown.

---

---