Feb 10, 2023
China Cash Squeeze Eases as PBOC Adds 1 Trillion Yuan in 3 Days
, Bloomberg News
(Bloomberg) -- China’s cash squeeze eased, with a gauge of overnight funding costs dropping the most in a week, after the central bank injected some $150 billion into the financial system over three sessions.
The overnight repurchase rate, an indicator of short-term borrowing costs in the interbank market, slumped more than 40 basis points to 1.86%. On Friday, the People’s Bank of China injected a net 180 billion yuan ($26.5 billion) via seven-day reverse repurchase agreements, taking the total amount to more than 1 trillion yuan in three days.
“We believe the PBOC will stay supportive in view of liquidity demand,” said Frances Cheung, rates strategist at Oversea-Chinese Banking Corp in Singapore. “Liquidity demand may stay on the high side in the coming weeks which will render repo rates volatile.”
Earlier this week, the overnight repo rate climbed to the highest in two years. Analysts have said the after-effects of China’s Lunar New Year Holiday and a sudden increase in loan demand as the country moves away from Covid-Zero are behind the liquidity shortage. The funding costs also showed signs of easing on Thursday.
State media also chimed in to soothe concerns. Funding costs in China’s financial markets have been rising recently, fueling speculation that the central bank has changed its stance toward liquidity management, but such worries are “unnecessary,” a commentary in the Securities Times said Friday.
Meanwhile, the nation’s consumer inflation accelerated last month as the Lunar New Year holiday spurred demand following the nation’s reopening from Covid Zero. The consumer price index rose 2.1% from a year earlier, the National Bureau of Statistics said Friday, matching the median estimate in a Bloomberg survey.
Chinese banks may have made 4.2 trillion yuan of new loans in January, tripling the amount seen in the previous month, according to the median estimate in a Bloomberg survey. That data, along with aggregate financing, will be released as early as this week.
(Adds analyst’s comment and inflation data.)
©2023 Bloomberg L.P.
