PBOC again unleashes cash into China’s financial system

Seeks to head off another crippling liquidity crunch.

The People's Bank of China added more cash into the financial system yesterday by offering US$2.77 billion of 7-day reverse repurchase agreements, the first injection of that type of funds since February.

Analysts noted the amount was small and overall liquidity remains tight as the economy weakens faster than expected, and worries remain over the health of China’s banks also grappling with massive municipal debts.

They said it looks like PBOC may continue regularly offering reverse repurchase agreements due to expectations for tighter liquidity conditions in the second half of the year.

The central bank usually engages in regular “open market operations” on Tuesdays and Thursdays, including offering bills and repurchase agreements to control liquidity in the money market. PBOC, however, hasn’t conducted an OMO since late June.

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