China’s Central Bank injects $23.4 billion into financial system

Sounds similar to the US Federal Reserve injecting billions into the financial system during the 2008 financial crisis…

China’s central bank brought out an array of tools to target stubbornly high financing costs this week, reducing interest rates, offering cheap loans and adding cash to the financial system through open-market operations.

Money-market rates are finally buckling under the pressure, with the overnight rate breaking a record 39-day run of increases and interest-rate swaps slipping to the lowest since July. Supply of cash has lagged demand especially since a shock Aug. 11 yuan devaluation that saw the People’s Bank of China buying the currency on subsequent days to lend it stability.

The monetary authority auctioned 150 billion yuan ($23.4 billion) of seven-day reverse-repurchase agreements Thursday, according to a statement on its website. It added the same amount on Tuesday, leaving a net addition of 210 billion yuan for the past two weeks, the most for open-market operations since February.

“Such big amounts before the effective date of a reserve-requirement-ratio cut shows the central bank hopes to stabilize funding costs amid outflow pressure,” said Li Qilin, a fixed-income analyst at Minsheng Securities Co., referring to a reduction in bank reserve ratios that will be implemented Sept. 6. “By lowering the reverse-repo rate, the central bank is trying to cut borrowing costs to support the economy.”

Read on.

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