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Central bank continues net cash injection via reverse repos

Updated: Aug 18,2017 2:15 PM     Xinhua

BEIJING — China’s central bank made a net cash injection via open market operations for the third consecutive day on Aug 18 in an effort to ease a temporary cash strain.

The People’s Bank of China conducted 120 billion yuan (about $18 billion) of reverse repos, a process by which the central bank purchases securities from commercial banks through bidding with an agreement to sell them back in the future.

The injection saw a net 20 billion yuan pumped into the market on Aug 18, offset by 100 billion yuan in maturing reverse repos. This came after a net injection of 50 billion yuan on Aug 17 and 180 billion yuan on Aug 16.

The central bank made a net cash injection of 110 billion yuan this week via open market operations, after withdrawal for two consecutive weeks.

Operations on Aug 18 included seven-day reverse repo priced to yield 2.45 percent and 14-day contracts with a yield of 2.6 percent, both unchanged from the previous operations, according to a central bank statement.

In the interbank market on Aug 18, the overnight Shanghai Interbank Offered Rate (Shibor), which measures the cost at which Chinese banks lend to one another, climbed slightly to 2.84 percent. The Shibor for one-month loans rose 0.62 basis point to 3.86 percent.

The central bank has increasingly relied on open market operations for liquidity management, rather than cuts in interest rates or reserve requirement ratios.

China set the tone of its monetary policy in 2017 as prudent and neutral, keeping an appropriate liquidity level but avoiding excessive liquidity injections.