PBOC to boost frequency of open-market operations around holiday

The People's Bank of China will be conducting open-market operations every working day around the Chinese New Year holiday.
The People's Bank of China will be conducting open-market operations every working day around the Chinese New Year holiday.PHOTO: REUTERS

BEIJING (BLOOMBERG) - China's central bank will conduct open- market operations every working day around the Chinese New Year holiday, compared with the current twice-weekly practice, as it looks to prevent festival demand from snowballing into a cash crunch.

The People's Bank of China will conduct the operations daily between Jan 29 and Feb 19, according to a statement posted on its website Thursday.

The monetary authority will also expand access to a short-term lending tool to an additional seven banks, and allow bonds issued by government-backed institutions and commercial banks to be used as collateral. Local markets and government offices will be closed Feb 7-13.

"Providing liquidity via open-market operations may be the best solution at this junction if the PBOC sees liquidity tightness as short term," said Frances Cheung, Hong Kong-based head of rates strategy for Asia ex-Japan at Societe Generale SA. "It can avoid an impact on the currency market from a reserve- requirement-ratio cut when market sentiment remains fragile."

Policymakers are trying to keep borrowing costs from rising as they contend with the slowest economic growth in a quarter century and record capital outflows that drove the yuan to a five-year low earlier in January.

The one-month Shanghai Interbank Offered Rate climbed to the highest level since July on Thursday even after the central bank pumped a net 1.8 trillion yuan (S$391 billion) into the financial system so far this year.

This will be the first time that the PBOC will conduct open-market operations every day, according to Ming Ming, Beijing-based head of fixed-income research at Citic Securities Co, who previously worked in the PBOC's monetary policy division for eight years.