China’s central bank yesterday broke out of its usual pattern of daily liquidity operations, as it boosted a cash injection into the financial system, soothing market nerves frayed by regulatory crackdowns.
The People’s Bank of China (PBOC) added 30 billion yuan (US$4.64 billion) of liquidity into the financial system with seven-day reverse repurchase agreements, raising it from 10 billion yuan of injections for the first time since June 30. The move also came amid seasonal tightness in liquidity before the end of the month.
The cash injection is seen as a signal that regulators are seeking to restore calm in financial markets after reforms in China’s after-school education sector and unverified rumors that US funds are off-loading China and Hong Kong assets induced a sharp sell-off.
Photo: Bloomberg
Interbank borrowing costs dropped yesterday, with the overnight repurchase rate falling the most in nearly a month. The yield on China’s 10-year government bonds declined for the first time in three days.
“The PBOC added more liquidity at this time to ease and support market sentiment,” Citic Securities Co (中信證券) fixed-income research head Ming Ming (明明) said.
“There’s greater demand for funds as a month-end approach and so liquidity is slightly tight,” he said, adding that bonds should gain in the near term with the liquidity boost.
Yesterday’s cash operation follows a meeting convened by China’s securities regulator with executives of major investment banks on Wednesday night. Some bankers left with the message that the education policies were targeted and not intended to hurt companies in other industries, people familiar with the matter said.
State-run media have also published a series of articles suggesting the rout is overdone, while some analysts have speculated that government-linked funds have begun intervening to prop up the market.
Xinhua news agency said in an article late on Wednesday that recent policies targeting Internet platforms and after-school tutoring are aimed at protecting online data security and social welfare rather than outright curtailing those industries.
Sentiment was also boosted after CNBC reported that China would allow domestic companies to go public in the US as long as they meet listing requirements. Companies with variable interest entity structures can also seek cross-border listings, CNBC reported, citing a person familiar with the matter.
“What this shows is that there isn’t an intention to unilaterally destroy business models and businesses which are fundamentally aligned to the party’s priorities for China’s development,” said Adam Montanaro, a London-based emerging-market fund manager at Aberdeen Standard Investments.
The step gives reassurance that the tutoring industry decision was a unique case and “should slowly begin to restore confidence if they can convince the market that the regulatory developments are not an attack on profitable enterprises,” he added.
The CSI 300 Index rose, pulling back from near a bear market. There was more demand for seven-day repo this morning as banks sought cash beyond the end of the month, a trader said.
The overnight repurchase rate fell 42 basis points to 1.63 percent, while the 10-year bond yield declined two basis points to 2.9 percent. The offshore yuan rose 0.2 percent to its highest in a week.
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