China’s central bank holds off from open market operations for first time in 4 months

The People's Bank of China refrained from draining funds from the money market yesterday, the first time it held off from open market operations in four months and signalling its intentions to keep borrowing costs low, traders said.

As a result, the mainland's central bank will inject 35 billion yuan (HK$44.2 billion) on a net basis into the interbank money market this week after pumping in a net 10 billion yuan last week.

On Tuesday, the PBOC cut the yield on the 14-day bond repurchase agreement for the fourth time this year to 3.2 per cent, from 3.4 per cent, which followed a surprise cut to benchmark lending rates last Friday to support the cooling economy.

"The absence of open market operations matches expectations because it is in line with PBOC's decision to cut interest rates," said a trader at a state-owned bank.

She added the suspension was necessary given recent tightness in liquidity due to month-end factors as well as cash demand related to a series of initial public offerings.

The weighted average of the 14-day repo was at 3.8148 per cent, down from 3.9541 per cent on Wednesday. It had hit a four-month high of 4.4547 per cent last Friday. The benchmark seven-day repo average fell to 3.2804 per cent from 3.32 per cent.