China’s central bank is maintaining its policy of injecting liquidity in small doses into the financial system, data showed.
The People’s Bank of China (PBOC) oversaw the tiniest daily cash infusion since January 2021, with just 2 billion yuan ($296 million) added through seven-day reverse repos on Wednesday.
With 3 billion yuan worth of such a liquidity tool maturing on Wednesday, China’s central bank drained 1 billion yuan on a net basis on the day.
China’s key money rate fell below the main threshold on Wednesday, pressured by ample liquidity conditions in the banking system. The rate touched an 18-month low on Tuesday.
The volume-weighted average price of the overnight repo traded in the interbank market fell below 1% for first time since January 2021, to 0.9809%.
China’s key money market is showing little sign of stress due to ample liquidity ahead of month-end peak demand for cash.
The elevated liquidity levels also prompted some market participants to wonder if China’s central bank can maintain easy cash conditions, as they were turning their attention to this week’s policy meeting for more guidance.
The volume-weighted average of overnight repurchase agreements, or repos, traded in the interbank market fell to 1.0183% by around midday on Tuesday, the lowest since January 8, 2021.
Banks and companies usually have higher cash demand towards the end of the month to meet various administrative requirements and payment needs, which pulls cash out of the banking system to drive money rates higher.
- Reuters, with additional editing by George Russell