PBOC pumps 255b yuan into interbank market
Analysts expect more cash to be injectedin the near future after surge in the benchmark repurchase ratetriggers the central bank's move
The People's Bank of China injected 255 billion yuan (HK$326.8 billion) into the interbank market in the largest single-day injection of funds in almost a year, but more liquidity is probably needed to quench the country's cash-thirsty financial system.
The central bank pumped the cash into the seven and 21-day reverse bond repurchase agreements yesterday, following a rate surge on Monday when the benchmark seven-day bond repurchase rate was quoted as high as 10 per cent.
"The PBOC will likely have to release more liquidity for the holiday season than last year," said Fan Wei, an analyst at Hongyuan Securities. "The higher indebtedness of China's economy generates huge demand for funds and any default will have a knock-on effect in the financial system and exacerbate the cash shortage."
The seven-day repurchase rate, a gauge of interbank funding availability, dropped 88 basis points to 5.44 per cent in Shanghai, the daily fix compiled by the National Interbank Funding Centre showed. It rose later to close at 6.6 per cent.
"It suggests the size of the injection is still insufficient. We can expect further liquidity releases in the near future," Fan said.
Analysts said the PBOC would need to do more to counter the possible credit crunch following at least two rate shocks last year.