China in Longest Streak of Liquidity Withdrawals Since February

(Bloomberg) -- China’s central bank drained cash from the banking system for a seventh straight day as market rates plummet amid ample liquidity.

The People’s Bank of China withdrew a net three billion yuan ($442 million) in open market operations on Tuesday, taking the total withdrawals since July 25 to 18 billion yuan. That’s the longest period of net withdrawals since February in open market operations.

Policymakers have sought to keep liquidity conditions in the banking system ample to support the economy battered by Covid outbreaks and a slowing property sector. However, the demand for loans has remained tepid, leaving a glut of cash that’s failing to trickle through into the financial system.

That’s prompted some cash-rich lenders and to buy government, policy bank bonds and high-grade corporate debt. The seven-day repo rate fell to 1.43% on Monday, the lowest in more than two years, indicating the level of excess liquidity.

“This is already the bottom for money market rates and we will sit here for another few months,” said Zhaopeng Xing senior China strategist at ANZ Bank China Co.

Even though it hasn’t cut rates since early in the year, China added liquidity by transferring 900 billion yuan of profits to the central government in the first half, reduced the amount of cash banks must keep in reserve in April, and also injected 400 billion yuan of medium-term lending facility in the first seven months.

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Author: Tania Chen