China's central bank in further injects funds 5 straight days in this week into the financial system open market operations to ease liquidity before the Lunar New Year holiday. Today, The People's Bank of China conducted 60 billion yuan of 14-day reverse repurchase agreements (repo) and 90 billion yuan of 28-day reverse repo, a process in which central banks purchase securities from banks with agreements to resell them in the future. The bank injects funds 510 billion yuan in total this week.
PBOC takes net additions via open-market operations this year to 1.6 trillion yuan, data compiled by Bloomberg show. That compares with 400 billion yuan in 2015. The PBOC also took the unprecedented step of doing the operations daily, instead of twice a week, either side of the holidays.
Demand for cash usually increases as people hoard funds to pay for trips, feasts and gifts in the run-up to Chinese New Year. Record capital outflows that led to the first annual decline in the nation’s foreign-exchange reserves in more than two decades have further tightened liquidity this year.
“The PBOC has to add an unprecedented amount of cash before the Chinese New Year to maintain stability in the financial system,” said Wang Ming, chief operations officer at Shanghai Yaozhi Asset Management LLP, which oversees 4 billion yuan of fixed-income securities. “Capital outflows widened the funding gap, and that’s why so much money is needed.”
Reference: Bloomberg, The People's Bank of China
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