China’s central bank is maintaining its policy of injecting small doses of liquidity into the financial system, the data showed.

The People’s Bank of China (PBOC) oversaw the smallest daily infusion of liquidity since January 2021, with just 2 billion yuan ($296 million) added through seven-day reverse repos on Wednesday.

With 3 billion yuan of such a liquidity tool maturing on Wednesday, China’s central bank drained 1 billion yuan on a net basis that day.

The Chinese currency’s key rate fell below the main threshold on Wednesday, under pressure from abundant liquidity conditions in the banking system. The rate hit an 18-month low on Tuesday.

The volume-weighted average price of the overnight repo traded in the interbank market fell below 1% for the first time since January 2021, at 0.9809%.

Sufficient liquidity

China’s key money market is showing few signs of stress due to ample liquidity ahead of the peak in demand for cash at month’s end.

Elevated liquidity levels also prompted some market participants to question whether China’s central bank can maintain easy cash flow conditions, as they turned their attention to this week’s policy meeting for further guidance.

The volume-weighted average of overnight repurchase agreements, or repos, traded in the interbank market fell to 1.0183% around noon Tuesday, the lowest since Jan. 8, 2021.

Banks and businesses generally have a higher demand for cash towards the end of the month to meet various administrative requirements and payment needs, which pulls cash out of the banking system to push up money market rates.

  • Reuters, with additional editing by George Russell

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george russell

George Russell is a Hong Kong-based freelance writer and editor who has lived in Asia since 1996. His work has appeared in the Financial Times, Wall Street Journal, Bloomberg, New York Post, Variety, Forbes, and South China Morning Post. . .

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