China's central bank is looking to inject liquidity into the domestic banking sector ahead of the October holiday period. (File photo/Xinhua)
The People's Bank of China, China's central bank, has pumped a record 290 billion yuan (US$46 billion) of liquidity into the country's capital market through reverse repurchase agreements to relieve the floating capital pressure caused by the October holiday period.
A reverse-repurchase agreement is where a bank or other financial institution purchases securities from first-tier security traders and releases more capital into the market before selling the securities back to them at an agreed price on a later date.
Together with the latest reverse-repurchase, the central bank also opened up for bids on term deposits worth 40 billion yuan (US$6.3 billion) for two consecutive weeks to provide capital for next month, according to the Shanghai-based First Financial Daily.
Capital offerings have remained stringent since last Wednesday despite the commencement of the large-scale reverse-repurchase, with the Shanghai Interbank Offered Rate maintaining a high level as of Sep. 25.
The expected high fluctuations in capital were the result of the annual extended holiday period from September 30 to October 7 which encompasses the Mid-Autumn Day holiday and China's National Day. Analysts believe the strict capital situation will begin to ease at the conclusion of the holiday period.
The central bank was unlikely to lower its reserve requirement ratio for commercial banks to inject more capital into the market due to a fall in foreign reserve deposits over the past two consecutive months, implying a certain amount of money has been transferred out of the country, the First Financial Daily said.
The significant amount of the reverse-repurchase further lowers the possibility that the central bank would reduce reserve requirements, the paper added.
The People's Bank of China is expected to continue releasing capital into the market through market operations instead of lowering the required reserve ratio, which should happen only once or twice each year, according to the state-owned Bank of China.