Central bank's move aims to meet seasonal cash demand
The People's Bank of China (PBC), the country's central bank, pumped 35 billion yuan ($5.64 billion) into the money market through seven-day reverse repurchase agreements (repo) Thursday, a move experts said aimed at meeting seasonal cash demand.
It is also the central bank's first open market operation in more than two months. The PBC's last open market operation took place on April 16. Under the reverse repo, the central bank purchases securities from banks with an agreement to resell them at a future date.
The central bank also lowered the yield for its seven-day reverse repo from 3.35 percent in April to 2.70 percent, according to an announcement published on its official website Thursday.
As a result, the Shanghai Interbank Offered Rate (Shibor), which measures the cost for banks to borrow from each other, dropped Thursday. The Shibor seven-day yuan loan rate fell 12.90 basis points to 3.5060 percent, and its overnight loan rate slipped 10.80 basis points to 2.8870 percent.
"The money market usually faces certain liquidity pressure toward the end of June as banks and companies need to stock up on cash for their first-half financial reports," said a trader at a Shanghai-based State-owned bank, who preferred not to be named as he is not authorized to talk to the media.
"But the current money rates are not very high, suggesting the market has ample liquidity at present," he told the Global Times Thursday.
Although the money market on the whole has excess liquidity, it also faces a structural shortage of liquidity, which is why the central bank injected funds at this time, said Yu Fen---ghui, a senior executive at Agricultural Bank of China.
"[By lowering the funding costs,] the PBC is meant to alleviate the cash pressure on smaller banks as well as medium-sized, small and micro enterprises," Yu told the Global Times Thursday. "After all, a reverse repo at the end of June aims to increase short-term liquidity to fix the structural shortage problem."
So far, the PBC seems unlikely to roll out any more monetary easing measures this month, Yu noted.
His view echoes a report by the central bank newspaper Financial News, which said Thursday that because recent economic data showed signs of stabilizing, the central bank will likely want to observe the effects of its previous monetary policies, so it may not announce any big move in the short term.
