PBOC releases liquidity management data

The People's Bank of China (PBOC). the central bank, on Wednesday published data for its new liquidity management tool, but it still needs to do more to improve transparency, an analyst said.

Outstanding loans under the central bank's Short-term Lending Facility (SLF) amounted to 386 billion yuan ($62.8 billion) by the end of September, down 5.9 percent from August, the PBOC said.

The SLF is a short-term -liquidity management tool, similar to the PBOC's reverse bond repurchase agreements (reverse repos) to inject money into the market, Gao Yang, a bond trader at China Guangfa Bank, told the Global Times Wednesday.

Unlike the reverse repos conducted in open market -operations, the SLF enables large commercial banks to borrow from the central bank through individual agreements for one to three months, Gao said.

Many central banks worldwide have similar liquidity tools, such as the US Federal Reserve's Discount Window, the European Central Bank's Marginal Lending Facility, and the Bank of -Japan's Complementary Lending Facility.

"Affected by increasing uncertainty over the global economic and financial situation, there have been larger fluctuations of supply and demand for short-term liquidity in China's banking system," the PBOC said in a statement on Wednesday.

The PBOC created the SFL in early 2013, and used it to deal with temporary fluctuations -during the first nine months of this year, which has worked well, according to the PBC.

In June, when the money market saw sharp fluctuations, the PBOC injected liquidity via the SFL into prudent financial institutions that supported economic growth in alignment with the country's macroeconomic policies, and maintained financial stability, the central bank said.

As part of the PBOC's efforts to clamp down on riskier lending by commercial banks, the central bank declined to inject liquidity via reverse repos in late June even though commercial banks were suffering a cash squeeze. The overnight repo rate soared as high as 30 percent at the time, up from a normal range of 3 to 4 percent.

The cash crunch rattled global financial markets and triggered criticism of the PBOC's -apparently indifferent attitude and poor communication about its intentions.

The PBOC explained Wednesday that its strategy is to freeze long-term liquidity by issuing three-year central bank bills, while also providing short-term liquidity support through the SFL and reverse repos.

This combined practice will maintain a moderate liquidity level in the market, and also help sustain the stability of the money market, the PBC noted.

However, the PBOC's disclosure of the SFL data should be more timely and should be delivered in a more transparent manner by offering details about which commercial banks had received the SFL loans from the central bank, Zhou Hao, an economist at ANZ Banking Group, told the Global Times Wednesday.

In general, the PBOC is expected to inject funds rather than drain cash from the money market so as to avoid repeating the market panic of late June, while maintaining a prudent policy, Zhou said.

The PBOC reportedly injected a net 29.1 billion yuan into the banking system last week via its regular open market operations.

That compares with the 102.5 billion yuan drained from the banking system two weeks ago as existing contracts matured and the central bank suspended regular reverse repos.