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[SHANGHAI] The People's Bank of China refrained from adding cash to the financial system through reverse-repurchase agreements in open-market operations for the first time in six months.
The move comes after use of the short-term lending tool was scaled back on Tuesday, when 10 billion yuan (S$2.1 billion) of seven-day agreements were made available. That compares with a total of 70 billion yuan in last week's two auction windows and resulted in a net 60 billion yuan being drained from the banking system this week.
"Compared with previous years, interbank liquidity isn't tightening much this time," said Wan Zhao, a Shanghai-based analyst at China Merchants Bank Co. "We also don't rule out the possibility of a reserve-requirement-ratio cut. If the central bank is preparing that, then reverse repos aren't necessary." The benchmark seven-day repurchase rate fell 16 basis points to 2.26 per cent, extending this year's decline to 269 basis points, according to a weighted average from the National Interbank Funding Center.
A central bank economist damped speculation reserve requirements will be eased, saying that any adjustments should avoid causing too much volatility to short-term rates. In deciding on changes, maintaining stable money rates should be considered a priority as inappropriate timing and scale can lead to unwanted policy transmissions into the real economy, Ma Jun, chief economist of the People's Bank of China's research bureau, wrote in a newspaper commentary on Wednesday.
"I don't think it's necessary to read too much into today's move," said Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp. "This is the last day of the year, and a lot of people will take a half day off. Even if the PBOC offers 20 billion or 30 billion yuan of reverse repos, it doesn't really make too much difference to the market."