China injects US$4.6 billion of short-term cash to prop up the market after three-day plunge in stocks and bonds

People’s Bank of China

China broke out of its usual pattern of daily liquidity operations by boosting cash injections into the financial system, after the country’s stocks and bonds tanked on regulatory risks.

The People’s Bank of China pumped in 30 billion yuan (US$4.6 billion) of liquidity into the financial system with seven-day reverse repurchase agreements, resulting in a net injection of 20 billion yuan on Thursday.

The operation marked the authorities’ first short-term cash addition of more than 10 billion yuan since June 30. It also comes ahead of the month-end when liquidity is usually tighter.

The move adds to a slew of signs that Beijing is growing uncomfortable with the recent wild swings in the financial markets. China’s securities regulator was reported to have convened executives of major investment banks on Wednesday night, attempting to restore calm after a recent crackdown on the private education industry. State-run media have published a series of articles suggesting the rout is overdone, while some analysts have speculated government-linked funds have begun intervening to prop up the market.

The moves have calmed markets on Thursday. The CSI 300 Index rose 1.2 per cent Thursday morning after being pushed to the brink a bear market on Wednesday morning. The offshore yuan is 0.1 per cent lower against the dollar after a 0.6 per cent climb Wednesday.

“It seems the PBOC wants to help restore market confidence after a few days of wild dynamics,” said Zhou Hao, senior emerging markets economist at Commerzbank. “In general, this is in line with China’s general approach, which focuses on financial stability and expectation management.”

Interbank borrowing costs declined after the Thursday’s operation. The overnight repurchase rate fell 36 basis points to 1.69 per cent, while the seven-day rate declined 17 basis points to 2.23 per cent. The yield on the most actively traded contract of 10-year government bonds fell the first time in three days after rising by the most in a year on Tuesday.

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