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PBC maintains interbank liquidity

By Wang Jiamei (Global Times)

08:27, August 10, 2012

The People's Bank of China (PBC), the country's central bank, conducted its second seven-day reverse repurchase operation in the open market this week Thursday, resulting in a net injection of 44 billion yuan ($6.19 billion) for the week, according to a notice posted on its official website.

The central bank offered 50 billion yuan into the money market through seven-day reverse bond repurchase agreements with yields of 3.35 percent Thursday, unchanged from Tuesday. The open market operation was offset however by the maturity of 50 billion yuan in reverse repos from last Thursday.

The resulting balance produced little fluctuation in China's money market. The Shanghai Interbank Offered Rate (SHIBOR), a key barometer of interbank borrowing costs, saw its overnight rate rise by a slight 5.09 basis points Thursday to 2.5992 percent, while the seven-day rate climbed 5.84 basis points to 3.3117 percent, and the 14-day rate slipped 4.25 basis points to 3.3492 percent.

With 2 billion yuan in bills and 58 billion yuan in reverse repos set to mature this week, the central bank injected a total of 100 billion yuan into the money market through its regular open market operations Tuesday and Thursday.

While recent moves by the PBC have provided relatively ample liquidity in the interbank market, many in the market are still holding out hope for a reserve requirement ratio (RRR) cut in August.

"The PBC has been easing liquidity through reverse repo operations over the past several weeks, but we still expect the central bank to lower banks' RRR this month," a trader at a local State-owned bank told the Global Times. "Compared with repos, an RRR cut would play a greater role in boosting the monetary supply."

Slowing economic growth in China led the central bank to cut the RRR for the country's banks in February and May this year.

"The latest macroeconomic data also supports the expectation of another cut. Inflation in China fell further below 2 percent in July, representing more room for economic stimulus," the trader said.

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