People’s Bank of China mops up 80b yuan

Wednesday, February 03, 2021

China drained funds from the financial system after a key cost of short-term borrowing tumbled from its highest level since 2015, showing officials remain wary of excess liquidity, Bloomberg reports.

The People’s Bank of China withdrew a net 80 billion yuan (US$12 billion) of liquidity on Wednesday. The central bank offered just 100 billion yuan of seven-day funds even as 180 billion yuan matured. That means 480 billion yuan will now come due before the Lunar New Year holiday starts next week.

The overnight repo rate fell 37 basis points to 1.86 percent, in line for the lowest since Jan. 15. The rate surged to 3.3433 percent last month, surpassing China’s 10-year government bond yield.

The Securities Times, a national newspaper owned by the official People’s Daily, published a commentary Wednesday that said the central bank’s recent open-market operations are a sign it is seeking to keep liquidity “tightly balanced” to prevent risks stemming from leverage. State media last week ran a prominent commentary effectively telling people not to worry about the availability of funds.

“The PBOC has been closely watching asset prices, such as in the stock market,” said Ming Ming, head of fixed-income research at Citic Securities Co. “Liquidity conditions have clearly turned loose after injections since last Friday.”

He added that an unscheduled injection of medium-term liquidity before the holiday is now less likely than it was a few days ago, and the central bank is instead expected to offer a net 300 billion yuan to 500 billion yuan of funding in the coming week, mainly through reverse repos.