China’s central bank drains cash as yuan steadies

March 15, 2016 11:28 AM (UTC+8)

 

With the Chinese currency, the yuan, basically remaining stable against a basket of other currencies in February, and capital outflow pressures easing, the People’s Bank of China has decided liquidity levels are sufficient enough to slow the injecting of money into the financial system.

On Tuesday, the central bank decided to allow 10 billion yuan net ($1.54 billion) to be drained from money markets as previously issued reverse repurchase agreements (repo) matured.

The 10 billion yuan drain resulted from the central bank conducting reverse repos worth 20 billion yuan on Tuesday, while 30 billion yuan worth of reverse repos matured same day,

This follows a drain of 20 billion yuan from the financial system on Monday.

Taken together one can view this as a sign from the central bank that liquidity has been improving since it cut the reserve requirement ratio for commercial banks by 0.5 percentage points on March 1, analysts said.

On Tuesday’s interbank market, the benchmark overnight Shanghai Interbank Offered Rate (Shibor), which measures the cost at which Chinese banks lend to one other, rose by 0.4 basis points to 1.953%.

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