BEIJING: China’s economy is so flush with funds the central bank chose not to make any short-term cash injections into the financial market for the first time since 2020.
The People’s Bank of China (PBoC) said it refrained from pumping cash into the financial system via its open-market operations (OMO) because “the overall amount of liquidity is reasonable and abundant”.
The decision was made based on the demand from primary dealers in the money market, it said in a statement.
Signs of abundant liquidity underscore the challenge the PBoC faces as it seeks to damp down a bond rally that’s pushed yields to record lows amid a global rush for haven assets.
In recent indicators of growing concern from the authorities, a branch of the central bank asked rural lenders to be more mindful of the risks associated with their bond holdings. Additionally, state banks were seen selling government bonds to limit yield declines this week.
An indicator of short-term funding costs in the money market fell to the lowest level since January this week, a further sign of a plentiful cash supply.
China’s benchmark 10-year yield slid to a record 2.08% on Monday, down from 2.56% at the end of last year. Trade figures revealed a smaller-than-expected surplus for July, highlighting ongoing global market challenges.
“In line with the global movement and concerns about local leverage, today’s no-injection through OMO appears to be aimed at discouraging excessive bet on the China rates rally,” according to Kiyong Seong.
He is the lead Asia macro strategist at Societe Generale Hong Kong. — Bloomberg
