Record cash injection by PBOC to offset tax payment impact

Source: Xinhua | 2019-01-17

China’s central bank injected a record US$83 billion into the country’s financial system yesterday to offset the impact from a tax payment peak, seeking to avoid a cash crunch that would put further pressure on the economy.

The People’s Bank of China conducted 350 billion yuan (US$51.76 billion) of seven-day reverse repos at an interest rate of 2.55 percent, and 220 billion yuan of 28-day reverse repos at a rate of 2.85 percent.

Reverse repos enable the central bank to purchase securities from commercial banks through bidding with an agreement to sell them back in the future.

China’s policy-makers are pledging to step up stimulus measures this year and do more to protect jobs.

“The message is clear — the economy needs help,” said Trinh Nguyen, senior economist for emerging Asia at Natixis in Hong Kong.

Yesterday’s open-market operation, the bank’s largest net single-day injection on record, came a day after China’s state planner, the central bank and finance ministry all offered reassurances to investors, signaling more spending and other types of policy support.

The authorities now agree the economy needs more decisive support “and today’s large injection reflects that,” Nguyen added.

The PBOC said yesterday’s injection was aimed at ensuring there are ample funds in the financial system, which is facing strains as tax payments peak in mid-January, and as demand for cash picks up ahead of the Lunar New Year holidays starting in early February.

“The banking system’s overall liquidity is falling rapidly,” it said in a statement.

While sizable injections are common this time of year ahead of the long holidays, the addition was much heftier than usual and follows a large cut in banks’ reserve ratios announced this month, which will free up a total of US$116 billion for new bank lending.

The first stage, a 50-basis-point cut, came into effect on Tuesday. An equal-sized cut is scheduled for January 25.

The move also came a day after money supply data showed several of China’s key credit gauges continue to languish around record lows, despite government efforts to channel more funds to cash-starved companies and lower their financing costs.

China has pledged more support for the economy while vowing it will not resort to “flood-like” stimulus.

Asked if the PBOC needed to cut benchmark interest rates, a PBOC deputy said on Tuesday that existing policy measures should be improved.

Analysts at OCBC said the comments suggest the PBOC is willing to give existing measures time to work, and is in no rush to switch to more aggressive tactics at this point.

“I have never seen such huge amounts of reverse repos ... the central bank is making its attitude known,” said a trader at a brokerage house in Shanghai. “It’s saying, ‘don’t question my determination’” to stabilize market expectations.