PBOC Resumes Injections After 15-Day Halt Drives Up Money Rates

(Bloomberg) -- The People’s Bank of China resumed cash injections via open-market operations after a 15-day halt as tighter liquidity helped to drive bond yields higher.

The central bank on Wednesday offered 60 billion yuan ($8.7 billion) of seven-day reverse-repurchase agreements, and kept the interest rate unchanged at 2.55 percent. This was the first time of such operations since Aug. 21. The injections will help offset the impact of corporate tax payments and government bond sales, and ensure liquidity is reasonable and ample within the banking system, according to a statement posted on the website.

The one-week Shanghai Interbank Offered Rate climbed to 2.69 percent on Tuesday, the highest level since July 18. Rising money rates, coupled with faster-than-expected inflation in August, drove the yield on 10-year sovereign debt to a three-month high, which poses a risk to China’s efforts to lower borrowing costs amid an economic slowdown.

PBOC Resumes Injections After 15-Day Halt Drives Up Money Rates

“A relatively long period of suspension in open-market operations has spurred market speculation of monetary policy tightening,” said Ming Ming, head of fixed income research at Citic Securities Co. in Beijing. “As cash availability is expected to tighten at quarter-end and ahead of holidays amid rising local government bond supply, the PBOC will probably continue to pump in liquidity, helping to lower funding costs.”

China’s financial markets will be closed on Sept. 24 and Oct. 1-5 for public holidays.

The yield on sovereign debt due in a decade edged higher to 3.68 percent as of 4:21 p.m. in Shanghai, data compiled by Bloomberg show. The cost of one-year interest-rate swaps was little changed at 2.87 percent.

To contact Bloomberg News staff for this story: Helen Sun in Shanghai at hsun30@bloomberg.net;Jing Zhao in Beijing at jzhao231@bloomberg.net

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