China's central bank pumps 110 billion yuan into interbank market for second day
Back-to-back cash move comes after last week's devaluation that has led to interbank rates soaring as investors pull out of the yuan
The People's Bank of China intervened in the interbank market for a second time this week on Wednesday, pumping in 110 billion yuan through open market operations to steady interbank rates that have been shooting up as investors pull out of the yuan.
The PBOC confirmed after the market close that it injected 110 billion yuan to 14 financial institutions for a period of 6 months at a rate of 3.35 per cent.
This followed an injection on Tuesday when it added 120 billion yuan in repurchase agreements to the market.
The back-to-back cash injections came a week after the central bank allowed the yuan to devalue by more than 3 per cent over a three-day period, sparking concerns over capital outflow.
Central bank data for July confirmed that foreign exchange purchases have increased. Net outflow in foreign currencies amounted to 912.9 billion yuan in the year to July, according to the State Administration of Foreign Exchange. Much more undocumented cash is expected to have flown over the border in carry trade. Critical data tracking money flows for August will not show up until September.
As liquidity tightens, the Shanghai interbank offered rate, a market from which banks borrow from each other, has spiked.
The overnight Shanghai interbank offered rate, or Shibor, shot up 1,380 basis points to 1.667 per cent last week. Since August 11, one-week Shibor has jumped to 2.546 per cent, from 2.4 per cent.
