More, more, more money floods China’s system ahead of Lunar New Year

More, more, more … The People’s Bank of China (PBOC) is really worried about a cash crunch in the days ahead of Lunar New Year.

After flooding its financial system with 690 billion yuan last week, and another 10 billion on Monday, the central bank on Tuesday pumped even more money in.

Lunar New Year crowds waiting to enter main railway station in Guangzhou on Monday.

Lunar New Year crowds waiting to enter main railway station in Guangzhou on Monday.

Even though the week-long holiday starts Sunday, already people have started traveling. In the southern city of Guangzhou, 100,000 people were forced to wait outside the main train station Monday as poor weather delayed trains. During the lunar new year, the country’s most important holiday, many people travel home to see relatives, eat out at restaurants and give gifts or cash to friends or relatives.

Given the onrush, the PBOC wants to make sure there’s ample liquidity to fill holiday wallets. It conducted 100 billion yuan ($15.2 billion) of reverse repurchase agreements (repo), in which central banks purchase securities from banks with agreements to resell them in the future.

The operations include a 14-day reverse repo priced to yield 2.4% and a 28-day reverse repo with a yield of 2.6%, each worth 50 billion yuan respectively, according to a PBOC statement.

Since most businesses and financial institutions are closed for the holiday, the money injection was aimed at easing a liquidity strain usually expected before the holiday starts.

The PBOC also used other tools, including standing lending facilities, medium-term lending facilities and pledged supplementary lending, to offer more than 1.5 trillion yuan for the market in January.

Following Tuesday’s operations, the Shanghai Interbank Offered Rate (Shibor), which measures the cost at which Chinese banks lend to one another, fell 0.3 basis points to 1.984%, according to China Daily.

 



Categories: Asia Unhedged, China

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