PBOC scales back cash injections before banks' liquidity checks
Analysts surprised to see net withdrawal in open market operations
Shanghai
THE People's Bank of China scaled back the use of a short-term lending tool in its open-market operations, draining cash from the financial system as banks prepare to meet year-end liquidity checks by regulators.
The monetary authority auctioned 10 billion yuan (S$2.18 billion) of seven-day reverse-repurchase agreements at an interest rate of 2.25 per cent, less than the 30 billion offered a week ago. Banks' demand for funds typically rises in the run-up to deadlines for them to meet regulatory requirements.
"It's surprising to see a net withdrawal today in open-market operations," said Li Liuyang, chief financial market analyst at Bank of Tokyo-Mitsubishi UFJ (China) Ltd in Shanghai.
"It either means there is too much liquidity in the interbank market, so there's not much demand for reverse repos, or the central bank is preparing to use other tools, including reserve-requirement-ratio cuts, to meet demand for funds.…
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