China’s currency rates hit their highest levels in months after PBOC increased cash injections

SHANGHAI, Dec.28 (Reuters) – China’s short-term currency rates fell to levels near their highs in months on Tuesday after the country’s central bank stepped up the injection of liquidity to meet demand higher liquidity towards the end of the year.

The People’s Bank of China (PBOC) injected 200 billion yuan ($ 31.39 billion) into the banking system through seven-day reverse repurchases, the largest daily injection since the end of October, offsetting 10 billion. of yuan loans expiring on the same day.

Market sentiment has improved and cash conditions have broadly balanced after the liquidity operation, some bond traders said, adding that they expected markets to move smoothly in late October. year.

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The volume-weighted average rate of the seven-day benchmark repo traded on the interbank market was 2.237%, about 18 basis points lower than the previous day’s average closing rate of 2.4156%, the level highest since September 29.

Additionally, the repo for the same tenor traded on the Shanghai Stock Exchange also fell to 5.18% around noon, down from an 11-month peak of 6% reached a day earlier.

A trader at a Chinese bank said the high cost of borrowing on the stock market suggested the cash flow strain was structural, as nonbank financial institutions, which typically have to borrow from large public banks as a source of funds, have had to resort to the forex market for cash at much higher prices.

Many lenders refrain from lending to their peers as they need to consolidate their cash positions to meet various year-end administrative requirements, including a quarterly health check by the central bank.

“I don’t think cash flow conditions will tighten dramatically again at the end of the year,” said a second trader at a Chinese bank. “The PBOC’s remarks last night on flexible adjustments also improved sentiment.”

The central bank said at its 2022 working meeting that China will keep its monetary policy flexible next year as it seeks to stabilize growth and reduce financing costs for businesses amid a growing economy. Read more

($ 1 = 6.3720 Chinese yuan)

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Reporting by Winni Zhou and Andrew Galbraith; Editing by Kenneth Maxwell

Our Standards: Thomson Reuters Trust Principles.

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