China central bank injects billions to ease liquidity strain

Almaty. January 6. Silkroadnews - China's central bank on Tuesday pumped the biggest amount of fundssince September into the financial system in open market operations in an effort to ease aliquidity strain, People's Daily reports.
The People's Bank of China (PBOC) conducted seven-day reverse repurchase (repo)agreements worth 130 billion yuan (20 billion U.S. dollars). In a reverse repo, the centralbank purchases securities from banks with an agreement to resell them in the future.
The reverse repo was priced to yield 2.25 percent, unchanged from the yield of a netinjection last week of 10 billion yuan using reverse repos, according to a PBOC statement.
The move aims to ease a short-term liquidity shortage, which was caused by drops in newyuan funds outstanding for foreign exchange. The most effective measure to ease liquiditywould be to cut banks' reserve requirement ratio, Minsheng Securities analysts said in areport.
At the end of November, the new yuan funds outstanding for foreign exchange fell by 315.8billion yuan from a month earlier, the second-largest monthly drop on record, accordingto the latest data from the central bank.
New yuan funds outstanding for foreign exchange refers to the amount of yuan Chinesebanks put into the domestic market when they acquire foreign currencies from individualsor companies. It is an important indicator of foreign capital flow in and out of China aswell as domestic yuan liquidity.
The indicator has been falling since the beginning of last year, except for the month ofOctober, and the decrease reached 318.35 billion yuan in August, the largest monthly dropin history.
In Tuesday's interbank market, the benchmark overnight Shanghai Interbank OfferedRate (Shibor), which measures the cost at which Chinese banks lend to one other, climbedby 0.3 basis point to 1.998 percent, a three-month high.