The People’s Bank of China has increased the volume of cash injections into the market at the fastest pace since January 2017 amid rising demand for financing due to a week-long vacation at the end of the quarter.
On Monday, the central bank pumped 300 billion yuan ($46 billion) into the financial system through the reverse repo mechanism. This is the largest daily liquidity injection since January 18.
October 1 is the national holiday of the founding of the People's Republic of China so the financial markets will be closed during the first week of the month.
Usually, demand for cash significantly increases before the holidays. In 2017, the seasonal liquidity squeeze is expected to be more significant as the maturity of freely circulating certificates of deposit for a record 2.3 trillion yuan is expiring this month. As a rule, The People's Bank of China increases the money supply in the run-up to the week-long holidays.
Based on weighted average prices, the interbank rate on 7-day repo transactions fell by 12 basis points to 2.78% as of 10:44 in Shanghai.
The 10-year government bonds yield rose by 1 basis point to 3.62%.
