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China Boosts Liquidity by Most Since 2020 Amid Ukraine Conflict

(Bloomberg) — China’s central bank ramped up its short-term liquidity injection in the banking system, providing support just as global markets are roiled by the Ukraine conflict. 

The People’s Bank of China injected a net 290 billion yuan ($45.8 billion) into the financial system via seven-day reverse repurchase agreements Friday, the most since September 2020. The operation is aimed at keeping liquidity stable at month-end, it said.

“The injection is in response to tighter liquidity condition at month-end and also to send a reminder that the easing cycle is still under way,” said Ken Cheung, chief Asia FX strategist at Mizuho Bank Ltd. “The geopolitical tensions posed mounting uncertainties and banks may have preference to keep extra liquidity.”

China’s seven-day repo rate had risen to its highest in nearly a month on Thursday, signaling cash tightness in the financial system. The demand for cash typically increases toward the end of the month as corporates borrow to pay taxes and banks hoard funds for regulatory checks.

The PBOC made net injections of 190 billion yuan each into the banking system in the previous two sessions to alleviate the cash crunch. It had been draining liquidity in the last two weeks, which is what it tends to do after the Lunar New Year holiday.

(Updates with chart and comment in third paragraph)

©2022 Bloomberg L.P.

China Boosts Liquidity by Most Since 2020 Amid Ukraine Conflict

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