PBC’s reverse repos hit record high

Repo maturity moves to longer term to ease liquidity

The People’s Bank of China ( PBC), the central bank, used longer- dated reverse repurchase agreements ( repos) for a second consecutive day on Thursday, with a net money injection reportedly reaching a 1- month high.

The PBC conducted a 14- day reverse repo worth 80 billion yuan ($ 12.02 billion) with an interest rate of 2.4 percent, following a 14- day reverse repo of 50 billion yuan the day before.

The PBC also offered a 7- day repo of 140 billion yuan on Thursday, said a PBC statement.

Seven- day reverse repos worth 50 bil- lion yuan matured on Thursday, so the central bank has effectively injected 170 billion yuan into the market, hitting a 1- month high, the Wall Street Journal reported the same day.

The central bank is using 14- day operations to ease liquidity with longerterm money, as the 7- day reverse repos mature too quickly, Qian Qimin, a senior analyst at Shanghai- based Shenwan Hongyuan Securities, told the Global Times on Thursday.

The PBC met with several large banks on Wednesday discussing how to manage domestic money market liquidity, Reuters reported Thursday, citing banking sources.

At the meeting, the central bank said that its monetary policy stance will remain “basically unchanged,” which means the PBC will maintain a relatively loose monetary policy but may pump longer- dated money into the market when needed, according to Reuters.

Qian said the central bank may adopt 28- day reverse repos to inject money if current operations are not effective.

Money market rates rose after the release of longer- dated reverse repos. On Thursday, the 7- day Shanghai Interbank Offered Rate ( Shibor) rose by 0.2 basis points to 2.364 percent and the 14- day Shibor edged up 0.6 basis points to 2.647 percent.

Shibor is a daily reference rate to measure the costs for banks borrowing among themselves in the Shanghai interbank money market.

In July, China’s narrow money supply M1, including cash and demand deposits, grew 25.4 percent to 44.29 trillion yuan. M2, a broad measure of money supply covering cash in circulation and deposits, grew 10.2 percent year- on- year to 149.16 trillion yuan, data from the PBC showed on August 12.

Qian warned of a liquidity trap as shown by the divergence between M1 and M2.

However, the central bank said on August 15 that the divergence is caused by M1’ s low base in the past two years and China will not fall into a liquidity trap, read a separate statement on its website.