(Bloomberg) -China increased the injection of short-term cash into the financial system in a sign that it seeks to reassure market nerves frazzled by concerns about funding needs at the end of the quarter and China Evergrande Group’s debt crisis.
The People’s Bank of China injected 90 billion yuan ($ 13.9 billion) in net funds through seven-day and 14-day reverse buyback agreements on Friday, most since February. It was the first time this month that authorities added more than 10 billion yuan of short-term liquidity to the banking system in one day.
The operation comes as a crisis that Evergrande is facing, burning concerns about health in the country’s real estate and credit markets. The addition to stress is a seasonal increase in the demand for cash, as banks become less willing to lend towards the end of the quarter as they prepare for regulatory scrutiny. Liquidity also tends to tighten before a week-long holiday in China in early October.
“It is fair to say that the Evergrande situation and its implications for the broader real estate market will have a far greater direct impact on Chinese growth than any of the other regulatory crashes,” said Alvin Tan, head of Asia’s currency strategy at Royal Bank of Canada. “I would not be surprised if the PBOC acts to curb the downturn in the money markets.”
PBOC’s activities have not yet pushed down money market rates. The seven-day repo rate, an indicator of interbank borrowing costs, jumped 12 basis points to 2.39%, the highest level since July.
The central bank injected 50 billion yuan with seven-day reverse repos and another 50 billion yuan with 14-day contracts that have not been used since February. About 10 billion yuan came on Friday.
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