PBOC injects US$23.4b as yuan intervention drains funds

[SHANGHAI] China's central bank added the most funds to the financial system in open-market operations since Jan 2014 as currency-market intervention to prop up the yuan strained the supply of cash.

The People's Bank of China auctioned 150 billion yuan (US$23.4 billion) of seven-day reverse-repurchase agreements, according to traders at primary dealers required to bid at the auctions. That compares with 120 billion yuan maturing Tuesday, which leaves a net injection of 30 billion yuan.

The overnight repurchase rate climbed to a four-month high of 1.85 per cent Monday, and was at 1.83 percent as of 9.19 am in Shanghai Tuesday, according to a weighted average compiled by the National Interbank Funding Center.

Major banks have been seen selling dollars toward the close of onshore trading in Shanghai on most days since a surprise yuan devaluation on Aug 11. The intervention removes funds from the financial system and risks driving borrowing costs higher unless the monetary authority releases additional cash. China's foreign-exchange reserves will drop by some US$40 billion a month for the rest of this year, according to the median of 28 estimates in a Bloomberg survey.

The monetary authority injected a net 150 billion yuan last week using reverse-repurchase agreements. It also added 110 billion yuan via its Medium-term Lending Facility.

BLOOMBERG