Last Friday we pointed out that Chinese 7-Day SHIBOR had hit a fresh all time high just days after pundits thought that the year end liquidity shortage was temporary and things would be back to normal. This morning it appears that the PBoC is scrambling to restore some form of liquidity in suddenly frozen interbank market, especially with the traditionally liquidity draining Chinese new year coming up, as the central bank is said to have injected CNY300 billion of liquidity via reverse repos. To those who are concerned that the PBoC is playing an increasingly more volatile game, with liquidity either in big excess or completely absent, and with a very limited arsenal of measures, you are not alone.
Market News has more:
The People's Bank of China injected around CNY300 billion in liquidity into the interbank market via reverse bond repurchase agreements Monday, traders said, as lenders struggle for funds in the face of cash demands before next week's Chinese New Year holiday.
The repos were of 16- and 21-day durations, they said.
The looming week-long lunar New Year holiday is leading to a short-term shortage of liquidity as depositor demands for funds rise for travel and entertainment purposes.
Three traders confirmed the reverse repos, though the number and name of participating banks were not immediately known.
The first reserve requirement increase of the year went into effect last week, removing nearly CNY400 billion in interbank liquidity. Moreover, the books on a string of initial public stock offerings open this week, acting as another drain on funds.
The PBOC suspended biweekly sales of sterilization paper last week as part of its move to raise market liquidity.
The suspension resulted in a net injection of CNY249 billion into the interbank system last week, excluding the reverse repo.
Those confused how the interplay between RRR hikes and reverse repo actions operates, please read our primer on this seemingly contradictory activity here: On The Paradox Of Concurrent Chinese RRR Hikes And OMO Liquidity Injections