PBOC drains most cash in a year from banking system

Recent studies have identified China as the nation that drained the highest short-term liquidity out of its banking system in a year on a net basis, reducing support following a week-long holiday. Also, government bond futures slid by the most since August. 

The People’s Bank of China made 10 billion yuan (US$1.6 billion) in short-term funds available to lenders, bringing about a net liquidity withdrawal of 330 billion yuan, account maturities considered.

This move is a step away from the pattern applied by the central bank over the past five sessions where it added 100 billion yuan on a gross basis daily.

The PBOC had ramped up liquidity in the days leading up to the National Day celebrations, as a measure to ease the crunch brought on by seasonal demand for cash from lenders close to the end of the quarter. 

The move by policy makers may also have been fueled in part by the uncertainties surrounding China Evergrande Group. 

“The net drain suggests that China is moving back to normalizing policy after significant net injections prior to Golden Week,” said Mitul Kotecha, chief emerging-markets Asia and Europe strategist at TD Securities in Singapore.