China Adds Most Cash in Open Market Operations Since January

(Bloomberg) — China’s central bank injected the most liquidity via open-market operations since January, in a push to ensure ample cash supply ahead of seasonal tightness at year-end.
The People’s Bank of China added 280 billion yuan ($40 billion) into the financial system with 7 and 14-day reverse repurchase agreements Thursday, while keeping the interest rates unchanged. That came after the authorities restarted such operations after a 20-day hiatus on Wednesday. The overnight repo rate — an indicator of interbank liquidity — plunged the most in a month, while the benchmark seven-day tenor saw its biggest decline since July.
The nation typically sees tighter liquidity toward the end of a year, when banks are less willing to lend as they need funds for regulatory checks. Cash supply could tighten further in January, as residents across the country take out money to prepare for the Lunar New Year holiday. The liquidity drainage may prompt the PBOC next month to reduce the reserve requirement ratio, providing a boost to the sleepy bond market, economists say.
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“The PBOC is still looking to prepare the markets for the year-end,” said Zhaopeng Xing, a markets economist at Australia & New Zealand Banking Group Ltd. in Shanghai. “The amount isn’t that surprising.”
The PBOC cut the rate on medium-term loans in November for the first time since 2016 and lowered the rate on seven-day reverse repos on Nov. 18. It reduced the 14-day rate Wednesday to reflect the earlier policy moves.
The overnight repo rate tumbled by 43 basis points to 2.04%, while the seven-day tenor shed 20 basis points. The yield on the 10-year government bonds fell 1 basis point to 3.23%.
(Updates prices throughout.)
To contact the reporters on this story: Tian Chen in Hong Kong at tchen259@bloomberg.net;Livia Yap in Shanghai at lyap14@bloomberg.net
To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins, Kevin Kingsbury