PBOC Boosts Injections as Liquidity Tightens on Tax Payments

(Bloomberg) -- China’s central bank boosted injections via open-market operations to the most in two months to counter seasonal tightening of liquidity.

The People’s Bank of China pumped in a net 270 billion yuan ($42 billion) on Tuesday, as sales of reverse-repurchase agreements more than offset maturities. That’s the most since Nov. 16, data compiled by Bloomberg show. As much as 600 billion yuan is set to leave the financial system as lenders park corporations’ quarterly tax payments at the central bank, said David Qu, a market economist at Australia & New Zealand Banking Group Ltd. in Shanghai.

“This week can probably see the peak of such impact, and that’s why the central bank started to step up injections,” he said. While market-wide price indicators remain tepid, non-bank financial institutions and smaller lenders suffer much more than the biggest banks, Qu added.

Tuesday’s cash additions also came after the yield on 10-year China Development Bank bonds climbed to the highest level since September 2014 and nearly four weeks before the start of the Lunar New Year holiday, when liquidity tends to tighten. The yield on CDB debt due August 2027 rose one basis point to 5.06 percent on Tuesday, while that on 10-year sovereign notes was little changed.

The PBOC raised the interest rate of 63-day reverse-repos by five basis points to 2.95 percent on Tuesday, following a similar hike on shorter-term contracts in December. The central bank last used the longer lending tool in November.

To contact Bloomberg News staff for this story: Helen Sun in Shanghai at hsun30@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Philip Glamann, Will Davies

©2018 Bloomberg L.P.

With assistance from Helen Sun