China PBOC Expands Market Ops To Counter Liquidity Inflows
The People’s Bank of China expanded the scope of its efforts to remove liquidity from the banking system on Tuesday, transacting repos with 28-day maturities for the first time since the beginning of last June.
Along with the CNY50 billion removed via 28-day instruments, another CNY35 billion was drained using 14-day repos.
The central bank has stopped short of reintroducing PBOC sterilization bills with maturities of at least three-months, as some market participants have been expecting, though Tuesday’s extension out to 28 days signals that the bank is becoming slightly more aggressive in managing liquidity levels in the market.
Traders had expected the bank to step up its operations this week, noting that CNY108 billion in outstanding paper is set to mature and flow back into the market.
The performance of money market rates should dispel any notion that the PBOC is thinking about tightening monetary conditions.
Chinese money market rates, the focus of recent concerns about a systemic crisis in the country’s freewheeling financial system, fell Monday to levels not seen since a liquidity crunch.
The seven-day repo rate tumbled to an average 2.8252% late in the afternoon session, the first time that it traded under 3% since last May. The overnight repo edged up to 2.0682% from last Friday’s 1.8312%.
Both rates were far below the record 30% peak hit last summer when the PBOC refused to provide liquidity in order to clean up the market. It has since backed off, and last week signaled via the Xinhua News Agency that it’s comfortable with the seven-day repo rate under 4%.
The bank is now trying to curb inflows of liquidity into the financial system via the capital and current accounts, engineering a bout of yuan depreciation to squeeze speculators out of the appreciation trade.
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China PBOC’s Zhou Says Recent Yuan Moves ‘Normal’
The recent movements of the yuan exchange rate are “normal”, People’s Bank of China Governor Zhou Xiaochuan was quoted as saying Tuesday.
The official Xinhua News Agency also cited Zhou via its Weibo microblog as saying that the government won’t ban rapidly-growing internet finance businesses but will improve regulations governing them.
The Chinese yuan opened Tuesday weaker at 6.1546 before falling to as low as 6.1579 against the dollar, compared with Monday’s close of 6.1462.