The People’s Bank of China refrained from conducting open market operations for a fifth consecutive trading day on Wednesday, leading to a net liquidity drainage of 210 billion yuan.
PBOC said that banking system liquidity was “rationally stable,” given that contingent reserve arrangements and end-of-month fiscal expenditures were offsetting maturing reverse repo agreements.
A total of 980 billion yuan in funds has been removed from China’s money markets during PBOC’s five day absence from open market operations.
The overnight Shanghai Interbank Offered Rate (Shibor) fell by 1.2 basis points yesterday to 2.554%, while the weighted average rate for DR007 reverse repo edged lower to 2.8993%.
Analysts from Industrial Bank expect liquidity to remain stable and rates to start to rise in early February, yet do not foresee them moving past the high point tapped at the end of last year.
During the week in the lead up to the Chinese New Year the central bank is likely to shift from net withdrawals to net injections via open-market operations, and could resort to short-term liquidity operations to remedy any provisional scarcity of funds.