China’s central bank adds liquidity to nation’s financial system as Baoshang Bank’s seizure rattles domestic markets
- China’s central bank injected a net amount of 150 billion yuan through open-market operations on Monday and Tuesday, the most since the week ended March 8
- The benchmark 7-day repo rate rose further Tuesday to the highest in more than a month, in spite of the central bank’s efforts to calm interbank markets
The People’s Bank of China is acting to increase the supply of short-term funding to banks after the seizure of a regional lender rattled domestic markets.
China’s central bank injected a net amount of 150 billion yuan (US$21.7 billion) through open-market operations on Monday and Tuesday, the most since the week ended March 8.
“The Baoshang incident has made investors question the quality of similar assets and tightened interbank funding,” said Liu Peiqian, Asia strategist at NatWest Markets Plc in Singapore.
About 2.9 trillion yuan are due to be drained from China’s banking system between June and August, according to Bloomberg-compiled data. Without rising stress in the banking system, the PBOC’s preferred course of action would be to keep extra liquidity provision to a minimum, with the government’s debt campaign and the vulnerability of the yuan in mind. A broad cut to the reserve-ratio runs the risk of sending a stronger easing signal than is warranted, depressing the currency.