PBOC injects near record amount this week to avert cash squeeze

[BEIJING] The People's Bank of China pumped the largest amount into the financial system through open-market operations this week in almost three months, seeking to prevent tax payments and maturing medium-term loans from causing a cash sqeeze.

The central bank auctioned 240 billion yuan (S$50 billion) of seven-day reverse-repurchase agreements Friday, taking this week's net additions to 680 billion yuan. That's just shy of a record 690 billion yuan it injected in January, when demand for cash spiked before the Chinese New Year holidays.

More than 400 billion yuan in corporate taxes deposited with commercial lenders will move out of the banking system this month, according to Huachuang Securities Co, while the PBOC is set to make less medium-term loans than those coming due.

The PBOC's operations signal a preference for short-term liquidity injections over a cut to lenders' reserve requirement ratios, which would have a system-wide effect.

China's aggregate financing, a broad measure of credit, surged in March to 2.34 trillion yuan, according to central bank data this month, surpassing all estimates in a Bloomberg survey. About 870 billion yuan of reverse repos will come due next week.

"Given the large amount of reverse repos and tax payments that will be due next week, some moderate volatility in liquidity may be unavoidable," said Li Zhiqiang, an analyst at China Minsheng Banking Corp.

"As aggregate financing surged, the central bank is less likely to cut the RRR, because once the money is released, it's difficult to pull it back." The central bank drained a net 205 billion yuan in the previous two weeks through its open-market operations, data compiled by Bloomberg show.

It made 448 billion yuan of loans this month via its Medium-term Lending Facility, compared with 551 billion yuan of such contracts that matured.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, has risen 12 basis points this week, heading for the biggest weekly increase since June. It added 4 basis point to 2.53 per cent as of 12.32 pm. The seven-day repo rate gained 12 basis points to 2.44 per cent on Friday, the most since February.

BLOOMBERG