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Central Bank Resumes Net Cash Injection

China's central bank made a net cash injection of 100 billion yuan ($14.6 billion) into the financial system through open market operations on February 16, ending 14 days of net fund withdrawal.


The People's Bank of China (PBOC) conducted 250 billion yuan of reverse repos, a process by which the central bank purchases securities from banks through bidding with an agreement to sell them back in the future.


The operations included seven-day reverse repo priced to yield 2.35 percent, 14-day contracts with a yield of 2.5 percent, and 28-day agreements with a yield of 2.65 percent.


The move came as 150 billion yuan of reverse repo agreements matured on February 16, which put liquidity strain on the market.


In total, more than 1.6 trillion yuan of funds injected by the central bank into the money market are set to mature this week, said Wen Bin, a researcher with China Minsheng Bank.


A net cash injection could avoid a rapid rise of short-term interest rates on the market, Wen said.


The central bank halted open market operations from February 4 to February 12, citing a "relatively high level" of liquidity.


Early this month, it raised the lending rates for reverse repos by 10 basis points, a move that was widely interpreted as a shift toward a more neutral monetary policy as economic fundamentals improved.


China should keep its monetary policy prudent and neutral, said Yi Gang, deputy governor the PBOC, on February 15.


(Xinhua News Agency February 16, 2017)

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