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PBC injects more cash into market

(Global Times)

08:20, October 10, 2012

The People's Bank of China injected a considerable amount of cash into the banking system Tuesday via reverse repurchase agreements, the second biggest daily amount of injection, in a bid to help ease liquidity strain after the holidays.

The central bank announced in a statement that it executed reverse repurchase contracts totaling 265 billion yuan ($42.14 billion) Tuesday, leaving the interest rates unchanged from previous weeks. The latest injection was smaller in volume following the 290 billion yuan of reverse repurchase agreements on September 25.

"Previous reverse repurchase agreements are set to expire this month, prompting the central bank to continue freeing up money to ease liquidity conditions," E Yongjian, a researcher at Bank of Communications in Shanghai, told the Global Times Tuesday.

The amount of reverse repurchase agreements that is due to expire in October is likely to reach more than 600 billion yuan, according to the researcher.

The fund injections would also help lower financing costs for corporations amid the economic slowdown, as the money market rates generally saw a decline Tuesday after the central bank's move, Huang Yanhong, a senior bond analyst at Bank of Nanjing, told the Global Times.

Market watchers hold mixed views on the possibility of the reduction on the amount of cash the financial institutions are required to hold as reserves.

"It is likely that the central bank will further cut the reserve requirement ratio in the near future, if the key economic data to be announced next week continues to signal sluggish prospects," Bank of Communications' E Yongjian believes.

A change in reserve requirement rates could better enhance banks' ability to extend loans, although its influence on liquidity conditions seems to be about the same as reverse repurchase contracts in the short term, he said.

But Bank of Nanjing's Huang believes the central bank will mostly resort to open market operations instead of reserve requirement cuts, as it will tend to favor more delicate monetary tools before the upcoming 18th National Congress of the Communist Party of China in November.

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