POBC injected another 340 million yuan into the country's financial system

People's Bank of China flowed into the financial system of the country another 340 billion yuan (47 billion EUR), continuing their large-scale intervention in response to the heightened need for liquidity.

Policy makers are trying to keep borrowing costs from rising as they contendwith the slowest economic growth in a quarter century and record capitaloutflows that drove the yuan to a five-year low this month. Short-term lendingtools are being used in preference to a more permanent loosening of monetarypolicy as the PBOC seeks to avoid exacerbating an exodus of funds that’s led tocostly intervention in support of the exchange rate. Yuan purchases drove arecord $108 billion slide in the nation’s foreign-exchange reserves in Decemberalone.“The huge amount ofopen-market injections are targeting the pre-holiday cash demand,” said LiuChangjiang, a bond analyst at Soochow Securities Co. in Shanghai. “As thecentral bank has become less willing to cut reserve-requirement ratios, suchshort-term funds are only keeping the money market tightly balanced.”

The benchmark seven-day repurchase rate, a gauge of interbank liquidity, was little changed at 2.31 percent Thursday, a weighted average from the National Interbank Funding Center shows. The one-month Shanghai Interbank Offered Rate climbed for a sixth day, rising four basis points to 3.13 percent, the highest level since July.

The central bank will conduct open-market operations every work day from Jan. 29 through Feb. 19, according to a statement posted on its website Thursday afternoon. Government offices will be closed Feb. 7-13 for the Lunar New Year holidays. The central bank also said it will allow seven more lenders to participate in its Short-term Liquidity Operations.

Demand for cash surges in the run-up to the break as people stockpile funds to pay for trips, feasts and gifts. Huachuang Securities Co. estimates the sum involved is close to 2 trillion yuan. Quarterly tax payments will syphon off some 300 billion yuan in addition to the average monthly drain of about 700 billion yuan stemming from capital outflows, the brokerage said.
The central bank added a net 1.8 trillion yuan into the financial system this month, including 1.135 trillion yuan via open-market operations and 612.5billion yuan via its Medium-term Lending Facility, data compiled by Bloomberg show. The PBOC plans to arrange 1.6 trillion yuan of short-term funds and as much as 800 billion yuan of medium-term liquidity support, according to the transcript of a PBOC meeting posted on Sina.com Friday.