CHINA’S central bank has dusted off a liquidity instrument it last used eight months ago, part of a move to flood the banking system with cash before the Golden Week public holiday.
The People’s Bank of China (PBOC) on Monday (Sep 22) pumped almost 300 billion yuan (S$54 billion) of cash into the banking system via 14-day reverse repurchase agreements, an instrument it last used in January. That came alongside around 241 billion injected through seven-day reverse repos, a regular liquidity tool.
The move shows the PBOC wants to make sure there is plenty of cash in the system before a long public holiday, and may be followed by similar liquidity injections later this week, SWS Research analysts led by Huang Weiping wrote in a note.
The use of 14-day reverse repos will be more flexible in the future and won’t be restricted to pre-holiday periods, PBOC-backed newspaper Financial News said in a commentary late last Friday. Upcoming 14-day reverse repo injections underscore a moderately loose monetary policy, it said.
Chinese markets will be closed from Oct 1 to Oct 8 for National Day celebrations, a period when analysts closely watch consumption and tourism spending for signs of economic recovery.
Banks tend to set aside more cash before the holiday. They also try to hold cash as the end of September approaches in a move to boost their balance sheets before quarterly check-ups from the regulator.
The PBOC said in another statement late last Friday that it has changed the auction method for the 14-day reverse repo. It will now offer a fixed amount but allow banks to bid at multiple prices, a reversal of its previous method of fixing the price ahead of time but keeping the volume flexible.
The revamp came after a change to the PBOC’s one-year medium-term lending facility earlier this year, becoming just the latest sign of the central bank tinkering with its monetary policy toolkit. BLOOMBERG
