China’s central bank added a record 290 billion yuan (US$46 billion) to the financial system using reverse-repurchase agreements, seeking to address a cash squeeze in the run-up to a weeklong holiday.
The People’s Bank of China (PBOC) conducted 190 billion yuan of 28-day reverse repos and offered 100 billion yuan of 14-day contracts, according to a trader at a primary dealer required to bid at the auctions. Yesterday’s total is the highest for a single day in Bloomberg data going back to 2004.
“Record amounts of reverse repos are to meet the surge in cash demand before the quarter-end and the holidays,” said Liu Junyu (劉俊鬱), a Shenzhen-based bond analyst at China Merchants Bank Co (招商銀行), the nation’s sixth-biggest lender. “As the central bank steps up adding funds through reverse repos, it’s unlikely to cut the reserve ratio this month.”
The seven-day repurchase rate, which measures interbank funding availability, gained 19 basis points to 4.7 percent as of 4:30pm in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It touched 4.75 percent, the highest level since June 28.
The PBOC kept the yields on 28 and 14-day reverse repos unchanged at 3.6 percent and 3.45 percent respectively, Liu said.
China’s financial markets will be shut from Monday to Oct. 5 for the national day and Mid-Autumn holidays.
China’s monetary authority also sold 40 billion yuan of six-month treasury deposits to commercial banks on behalf of the Ministry of Finance at a yield of 4.32 percent, according to a different trader. That compared with Monday’s six-month Shanghai interbank offered rate of 4.09 percent.
The PBOC lowered the amount of cash lenders must set aside as reserves in May to 20 percent, the second reduction this year.
Meanwhile, a survey modeled on the US Federal Reserve’s Beige Book on Monday showed that China’s manufacturers and retailers are less optimistic about sales than they were three months ago and more companies are cutting jobs.
The China Beige Book, through interviews of more than 2,000 company executives and bankers from Aug. 9 to Sept. 3, found limits to monetary easing after interest-rate cuts in June and July, with banks loosening credit while fewer companies are borrowing, according to a summary from CBB International LLC, the New York-based researcher that conducted the survey.
The findings build on economic data indicating manufacturing, trade and retail sales slowed in the third quarter, pointing to a seventh straight deceleration in growth and potentially the weakest annual expansion in 22 years. They contrast with the China Beige Book’s report for the previous period, which said it found a rebound not reflected in official statistics and projected government data would reflect a pickup by “mid- to late summer.”
“The dramatic and unexpected worsening of the European crisis and slowing of America’s economy brought China’s export order growth to a near-standstill,” said Craig Charney, research director for the China Beige Book.
At the same time, the report showed some trends continued “despite the overall growth slowdown,” including relatively faster growth in retailing and services, a recovery in the real estate market, and greater strength in poorer and more peripheral regions than coastal industrial areas, he said.