PBOC Is Said to Have Drained Short-Term Liquidity in August

(Bloomberg) -- China drained funds from the short-term money market in August, according to people familiar with the matter, a move that complements efforts to support lending to the real economy.

The People’s Bank of China removed 300 billion yuan ($44 billion) of liquidity in the unannounced repurchase operation, the people said, asking not to be named as they weren’t authorized to speak about the matter.

The PBOC said after publication that the report is not true, declining to give further details.

During the same month, the PBOC added hundreds of billions of yuan via reverse repurchase agreements and increased the amount of money it lent in the medium-term market.

The combination of the various different central bank operations has the effect of keeping liquidity neutral in the short-term, more speculative, market, and adding it to the medium-term market, where it’s intended to be used for lending to companies. The government and central bank are trying to tread a difficult path, aiming to both reduce risk in the financial system but also encourage banks to lend and buy bonds to support economic growth.

The last time the central bank announced a repurchase agreement was in Nov. 2014, according to data tracked by Bloomberg. It conducted targeted repo and reverse repo operations in June 2015, according to people familiar with that operation.

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