PBOC Expands Injections as Overnight Rates Rise to Two Year High

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Sustained gains in China’s money market rates have prompted the central bank to lift net monetary injections to a three month high.

The overnight Shanghai Interbank Offered Rate (SHIBOR) rose 0.0175 percentage points on Friday to reach 2.6163% and hit a near two year high, while the 7 day SHIBOR rate lifted 0.0020 percentage points to reach 2.76%.

Sustained rate gains and capital tightening have compelled PBOC to act, with its open markets operations office announcing a one-day net capital injection of 40 billion yuan on 21 April, with reverse repos transactions worth 100 billion yuan for 7 day, 14 day and 28 maturities, as compared to 60 billion reverse repos that have reached matured.

This brings the net amount that PBOC has added to China’s money supply this week to 170 billion yuan, the largest such amount over the past three months.

According to traders the transfer of funds by local finance departments to higher level governments over the past several days has drained interbank deposits, making banks more cautious about lending and leading to a scarcity of interbank capital.

 

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