SHANGHAI--China's short-term interest rates fell Tuesday after
the central bank pumped in an usually large amount of funds into
the money markets to pre-empt a potential liquidity crisis as
demand for cash rises ahead of the Lunar New Year holiday.
The move also sent cheers to the country's battered stock
market, with the Shanghai Composite Index rising 0.9% and above a
five-month low hit Monday.
The relatively proactive move to calm the stress in the money
markets is a departure from three liquidity crunches last year when
the central bank held off until the squeeze became much worse.
Still, analysts say Beijing is sticking to a tight monetary policy
seen as crucial to helping cut down on risky lending and
rebalancing the economy.
"It's really a big surprise that the PBOC is injecting such a
big amount of money and the market should be able to take a
breather," said Liu Dongliang, senior analyst with China Merchants
Bank.
The central bank offered 75 billion yuan (US$12.39 billion)
worth of seven-day reverse repurchase agreements, short-term loans
to commercial lenders, as well as 180 billion yuan worth of 21-day
reverse repos via its routine open market operations Tuesday.
The central bank typically uses such tools to adjust the supply
of funds every Tuesday and Thursday.
The move marks the first time the People's Bank of China
conducted the open market operations since Dec. 31, when it
injected 29 billion yuan via reverse repos to help end a severe
funding squeeze at that time.
The benchmark cost of short-term loans among banks, the weighted
average of the seven-day repurchase agreement rate, fell to 5.55%
Tuesday from 6.59% Monday but remains higher than 5.17% Friday.
Monday's level marked the rate's highest since Dec. 23, when it hit
8.94%.
The PBOC's latest move came after it announced in a brief
statement late Monday that it had offered funds to the nation's
large banks, after money market rates spiked as a result of heavy
demand for cash ahead of the Lunar New Year holiday and amid
worries over the vast "shadow banking" sector.
Using its official account on Weibo, the microblogging service,
the PBOC said it provided cash via the so-called standing lending
facility, or SLF, a tool it launched a year ago to discreetly
provide funds. It didn't give other details.
The PBOC also said it would inject more money into the financial
system via reverse repos on Tuesday, an unprecedented advance
disclosure of its liquidity adjustment strategies.
"These measures should help to reduce the liquidity risk in the
interbank market and the default risk in the corporate sector over
the next several weeks...But we do not think the monetary policy
stance has turned toward loosening, because the current GDP growth
rate is still acceptable to the government," said Zhiwei Zhang, an
economist at Nomura Securities.
The latest scramble for funds has been sparked by individuals
and companies rushing to buy gifts for a weeklong break starting at
the end of next week. Plus, banks are hoarding cash to ensure they
have enough to meet month-end regulatory requirements.
Wynne Wang contributed to this article.
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