PBOC Seen Selling Yuan After Record Highs

The People’s Bank of China added 50 billion yuan ($8.2 billion) to the financial system yesterday after a cash squeeze drove money-market rates to record highs, said Hao Hong, chief China strategist at Bank of Communications Co.

The sum was supplied to a single lender through short-term liquidity operations and more banks were in talks to obtain financing, Hong said in a phone interview, adding that this is “proper and appropriate” use of the mechanism. Overnight funds were lent at 5.1 percent and seven-day money at 5.4 percent, he said, citing unidentified people in the industry. A PBOC press official said he was unaware of the matter, requesting anonymity in keeping with bank policies.

The cash injection “is exactly what I would expect,” said Wee-Khoon Chong, a Hong Kong-based strategist at Societe Generale SA. “Market stability should always be the top priority of regulators and central banks.”

Interbank lending rates spiked yesterday as the monetary authority refrained from using open-market operations to address a cash crunch in the world’s second-largest economy. The one-day repurchase rate jumped by a record 527 basis points, or 5.27 percentage points, to an all-time high of 12.85 percent in Shanghai, according to a daily fixing by the National Interbank Funding Center. An intra-day gauge touched a record 30 percent. The seven-day rate climbed 270 basis points to an unprecedented 10.77 percent, a separate fixing showed.

Bloomberg

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