PBOC repo move aims to aid credit supply, cut rates

The People's Bank of China injected 17 billion yuan ($2.77 billion) into money markets on Tuesday through seven-day reverse bond repurchase agreements, the first such move in five months, to ease concerns over a credit crunch that pushed benchmark interbank lending rates to four-week highs.

Analysts said that although the volume of the operation was limited, it sent a signal to money markets.

"I see the levels more as a shift in the PBOC's stance to actively manage money market conditions to avoid a re-run of the liquidity squeeze in June," Societe Generale economist Chong Wee-khoon said in a note the same day.

It was the first time that the PBOC, the central bank, had conducted open market operations since June 20. It was also the first time the bank injected funds into the money markets.

"The levels could also serve as a signal that the era of ultra-loose and easy money is over," Chong wrote.

The PBOC's moves since the liquidity squeeze in June in the open market may help alleviate market fears that the money crunch in June might be repeated at the end of July, said a trader with an Asian bank in Shanghai.

The benchmark seven-day repurchase rate spiked to 5 percent on Tuesday for a second straight session, following a jump to 4 percent on July 26. It exceeded 5 percent on Monday for the first time in four weeks.

The rate reached a record - 12.45 percent - on June 20.

Liquidity eased on Tuesday in response to the central bank's money injection. The seven-day Shanghai interbank offered rate, a gauge of the availability of cash in the banking system, fell 8.5 basis points to 4.97 percent, according to a weighted average compiled by the National Interbank Funding Center.

Amid tight funding conditions anticipated for the remainder of the year, and the country's determination to achieve its growth targets, the central bank may take some measures to ease conditions in the money market, according to Oliver Chiu, head of research and investment advisory of retail banking in the global consumer group at Citibank (China) Co Ltd.

Stocks rose on Tuesday, with the benchmark Shanghai Composite Index climbing for the first time in five days as it added 0.7 percent to close at 1,990.38. The gauge has risen 0.6 percent this month after sinking 14 percent in June.

Share prices of lenders rose on Tuesday after plunges in the past few weeks. Ping An Bank Co gained 3.1 percent, Citic Securities Co climbed 1.9 percent and Bank of China Ltd rose 2.3 percent.

A total of 85 billion yuan in central bank bills will mature this week, compared with zero last week, data compiled by Bloomberg show.

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