China: PBoC Infuses Funds as IPO Demand Sparks Cash Squeeze
China: PBoC infuses funds as IPO demand sparks cash squeeze. Reuters

China's central bank reportedly pumped money into the banking system earlier today ahead of 11 listings scheduled for next week, which are predicted to lock up at least 1tn yuan.

The People's Bank of China (PBoC) supplied funds on a short-term basis, Bloomberg reported.

Some 50bn yuan ($8.2bn, £5.2bn, €6.6bn) was offered using Short-term Liquidity Operations (SLOs), Market News International reported.

Eleven companies are to list on the Shanghai and Shenzhen bourses next week, seven of them on 24 November, and Australia & New Zealand Banking Group has estimated the sales will lock up at least 1tn yuan.

Repurchase Rate

The seven-day repurchase rate, a measure of cash availability in the banking system, jumped 322 basis points, or 3.22 percentage points, to 6.50%, according to data from the National Interbank Funding Center. The increase marked the biggest intra-day jump in eight months.

A weighted average rose 37 basis points to 3.65% as of 1553 CST in Shanghai, the highest level since August.

PBoC Take

The PBoC, in a statement released on its microblog on 21 October, said it will provide liquidity support through multiple monetary policy tools when needed.

Initial public offerings (IPOs) have contributed to the recent volatility in money markets and the banking system has sufficient funds, the PBoC added.

Suan Teck Kin, an economist at United Overseas Bank in Singapore, told Bloomberg: "The PBoC clearly has the capacity to bring down money-market rates.

"But right now, I don't see the short-term rates coming off significantly as demand for cash is strong in relation to IPOs."

Trading Extension

Trading in the money market was extended by half-an-hour to 1700 CST on 20 November, according to a press officer at the National Interbank Funding Center. But the officer did not furnish a reason for the extension.

Nanjing Port scrapped a sale of 200m yuan of 270-day notes on Thursday, citing market instability.

In January 2013, the PBoC said it will employ SLOs as an added tool to manage the cash supply.

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