More Year of Monkey lifts: PBOC makes second liquidity injection

The People’s Bank of China pumped 340 billion yuan into the financial system, the second injection this week, to prevent a liquidity strain as demand for cash rises ahead of the weeklong Lunar New Year holiday.

monkeyweightliftOn Thursday, the central bank added 260 billion yuan ($39.7 billion) into markets through 28-day reverse repurchase agreements (repo) and 80 billion yuan of seven-day reverse repo, a process in which central banks purchase securities from banks with agreements to resell them in the future.

Together with Tuesday’s 440-billion-yuan reverse repo operations, the largest single-day liquidity injection in three years, a net 590 billion yuan has been pumped into the market this week, the biggest cash infusion since February 2013

Demand for cash surges ahead of the Lunar New Year as Chinese companies typically pay salaries and bonuses before the holiday. It’s also a period of time, when people traditionally travel, eat at restaurants more, and exchange cash and gifts.

The holiday runs from Feb. 7 to 13, during which time, China’s financial markets and business operations will be closed.

The 28-day reverse repo was priced to yield 2.6%, while the seven-day reverse repo was 2.25%, unchanged from Tuesday’s operations, according to a PBOC statement.

In Thursday’s interbank market, the overnight Shanghai Interbank Offered Rate (Shibor), which measures the cost at which Chinese banks lend to one other, fell slightly to 1.992%, reported China Daily.

Some analysts say the recent cash injections are a replacement for monetary easing as the bank has become reluctant to cut reserve requirement ratios – the proportion of money banks must put aside – on worries over the impact on China’s currency.



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