ADVERTISEMENT

International

PBOC Cash Injection Spikes Amid Tax Payments, Rate Focus

(Bloomberg, People's Bank of Chin)

(Bloomberg) -- China’s central bank injected the most amount of cash to its banking system since January via its daily operations, to keep liquidity plentiful as tax payments mount and the country’s leaders meet to set the economic agenda.

The People’s Bank of China injected a net 674 billion yuan ($93 billion) via reverse repurchase operations on Tuesday. The operation was aimed at offsetting the impact of tax season and keeping banking liquidity reasonably ample, it said. 

The move comes amid increased focus on China’s money markets with the PBOC considering a switch to using just one key short-term policy rate. A proposed new system of repurchase operations based on the seven-day repurchase rate has  strengthened expectations it’s set to succeed one-year policy loans known as the medium-term lending facility in becoming the new benchmark.

“July is a major month for tax payment, that leads to big pressure to the interbank liquidity, so PBOC needs to increase the injection,” said Ming Ming, chief economist at Citic Securities. However, “we can’t rule out the possibility that PBOC wants to increase the outstanding amount of reverse repos, to replace the medium-term facility amount gradually.”

The PBOC’s new bond repurchase or reverse repo operations will effectively narrow the corridor within which short-term rates can fluctuate. 

The large cash injection could also be aimed at stabilizing markets during the twice-a-decade policy meeting that started Monday, according to Australia & New Zealand Banking Group Ltd. China’s Third Plenum is where top officials usually deals with major economic and political policy changes. 

“The PBOC may want to avoid a funding cost spikes that could trigger the afternoon reverse repo operations and big volatility,” said Xing Zhaopeng, a senior China strategist at ANZ. “It wants to avoid financial risks during Third Plenum.”

--With assistance from Tania Chen, Jing Zhao and Shulun Huang.

©2024 Bloomberg L.P.