China’s central bank has allayed fears of a cash crunch by injecting money in the financial system for the first time in two weeks, but it has also steered interest rates to a higher level in a signal of mild monetary tightening.
The People’s Bank of China added Rmb13bn ($2.1bn) to the economy via open-market operations on Tuesday, having refrained from any liquidity injections since mid-October. It was a small amount, but was still seen as a clear indication that the central bank does not want a replay of the liquidity squeeze that rattled global markets in late June.
However, at the same time, the central bank raised the rate offered on the cash provided to the market. It set the rate for its seven-day bond reverse repurchase agreements at 4.1 per cent, up 20 basis points from the 3.9 per cent rate offered at all auctions since mid-August.