China's overnight repo rate falls to new low after cash injection

CHINA’S key money rate fell to a record low on Friday (Dec 23) after the central bank stepped up its liquidity support to help banks tide over the year-end rush for cash.

The volume-weighted average price of the overnight repurchase rate, or repo, in the interbank market last traded at 0.5527 per cent as of 0331 GMT, down about 15 basis points from the previous close.

“The central bank is sparing no effort to ensure a smooth year-end,” a trader at a Chinese bank said.

Cash demand usually surges and forces the central bank to offer more funds towards the end of December, when companies have to meet various payments and financial institutions also raise cash positions to meet administrative requirements.

The situation is further complicated this year as spreading Covid-19 infections sweep through trading floors, forcing a vast majority of market participants to work from home or call in sick, after China dismantled its strict Covid prevention protocols earlier this month.

Many economists and analysts said Beijing’s move to ease containment measures could put downside pressure on the economy in the near term and expect the central bank to keep cash conditions abundant to cushion the shock.

“The faster-than-expected reopening could put more pressure on economic activities in the next few months, but it also implies that China would live with Covid earlier than expected, likely from 2Q23,” said Larry Hu, chief China economist at Macquarie.

“As a result, the growth in 4Q22-1Q23 could be subdued, but the economy is likely to rebound strongly afterwards.”

The People’s Bank of China (PBOC) pledged to pay greater attention to various tasks at the year-end and early next year.

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The central bank has used various monetary policy tools recently to increase liquidity injections to “meet market demand in a timely manner, while maintaining reasonable year-end liquidity and promoting smooth operations of the financial markets,” the PBOC said in an online statement.

The PBOC injected a net US$100.76 billion via open market operations this week, the biggest weekly cash injection since late October, to ensure ample liquidity. REUTERS