The People's Bank of China (PBOC) on Wednesday injected liquidity into the banking system through reverse repos to offset the impact from a tax payment peak.
The central bank said the injection was to maintain “reasonably ample” liquidity in the banking system.
It attributed the generous liquidity support to the current peak period for tax payments, adding that “the banking system’s overall liquidity is falling rapidly”, according to a statement on its website.
In open market operations, the PBOC injected 350 billion yuan through seven-day reverse bond repurchase agreements and 220 billion yuan through 28-day reverse repos, reports Reuters.
On a net basis, the PBOC injected a net 560 billion yuan ($82.73 billion) for the day, as 10 billion yuan reverse repos are set to mature on Wednesday.
December’s “abysmal” trade data and manufacturing contraction have “translated to a consensus by authorities that the economy needs more decided support and today’s large injection reflects that,” said Trinh Nguyen, senior economist for emerging Asia at Natixis in Hong Kong.
“The news is clear - the economy needs help,” she added.
On Tuesday, Chinese officials signalled that they will roll out more stimulus measures in the near-term, after the shock contraction in December exports and imports reported on Monday raised fears the economy was cooling more quickly than expected.
Ming Ming, head of fixed income research at CITIC Securities in Beijing, said the fund injection was to counter seasonal factors including tax payments and rising cash demand for the Lunar New Year holiday, which comes in early February this year.
The PBOC’s move boosted market sentiment. China’s 10-year treasury futures for March delivery CFTH9, the most-traded contract, rose 0.42 per cent to 98.155.
Interbank money rates eased slightly. The volume-weighted average rate of the benchmark seven-day repo CN7DRP=CFXS traded in the interbank market, considered the best indicator of general liquidity in China, was 2.6312 per cent on Wednesday morning, more than 1.5 basis points lower than Tuesday’s closing average rate.
On Jan. 4, the PBOC said it was cutting the amount of cash that banks have to hold as reserves for the fifth time in a year, freeing up $116 billion for new lending in a two-stage cut to banks’ reserve requirements.
The first 50-basis-point cut came into effect on Tuesday, with another 50-basis-point cut scheduled for Jan. 25.
On Tuesday, China said that its banks extended far more new loans in December than expected, bringing last year’s tally to a record $2.4 trillion as Beijing scrambles to help cash-starved companies and ease mounting pressure on the weakening economy.
