In an unanticipated move the People’s Bank of China (PBOC) has drained 48 billion renminbi (RMB), the equivalent of US$7.9bn, from money markets.
China’s central bank withdrew the cash by issuing 14-day bond repurchase agreement (repos), the first time since last June it had repos to drain liquidity from the money market.
The PBOC website confirmed that RMB48bn of 14-day repos were conducted at 3.8%. The monetary authority last issued such contracts on 6 June, when it sold RMB10bn of 28-day repos. The 3.8% rate is higher than both the 2.75% in the June auction and the 2.05% when the PBOC last issued 14-day repos in January 2011.
The PBOC’s move was seen as a response to sharply higher bank and shadow lending last month. New local currency loans of RMB1.32 trillion were nearly three times December’s total, and RMB200bn above market expectations. It was the highest monthly total in four years.
“The central bank needs to maintain funding costs at an appropriate level, and a seven-day repo below 4% isn’t normal,” Huang Wentao, a Beijing-based bond analyst at China Securities, told news agency Bloomberg. “The PBOC will probably continue repo operations and monetary policy will continue to be neutral-to-tight in the first two quarters.”
Conducting repos is “a hawkish move highlighting the central bank’s determination to tighten monetary policy via liquidity tools,” commented Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. The PBOC move indicated that “policy makers are uncomfortable with the recent decline in money-market rates and with the explosive growth of bank lending and other forms of social financing in January.”
GTNews asks Pugsley about what advice she would give to treasurers dealing with mergers and acquisitions, what the key challenges for her year ahead will be and how she is selecting a treasury management system (TMS).
The US money market fund reforms came into effect in 2016 and are already dramatically shaping US fund industry with investors flooding out of prime funds and into government securities. While the reforms are similar, they are not the same. GTNews interviews Yeng Bulter, global head of the cash business at State Street Global Advisors on the differences.
Tim de Knegt, strategic finance and treasury manager for the Port of Rotterdam, discusses how he is using blockchain, the challenges he will face in his role of treasury over the next 12 months and the advice he would give to someone starting out their career in treasury.
Due to the low interest rate environment and Basel III regulation many corporate treasurers, who may have in the past been very reliant on the banking sector to provide them with cash management solutions, have been forced to explore alternative options as banks have been refusing short dated cash deposits.