China maintains liquidity support as Evergrande problems persist

(Bloomberg) – China’s central bank continued to add short-term liquidity to the financial system on Friday as policymakers sought to allay concerns about the China Evergrande group debt crisis.

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The People’s Bank of China injected 120 billion yuan ($ 18.6 billion) into the banking system with repurchase agreements, resulting in a net injection of 70 billion yuan. While Friday’s net addition was lower than amounts seen over the previous four days, he underscored authorities’ intention to avoid systemic stress as Evergrande’s debt problems hurt sentiment.

Beijing has stepped up efforts to boost confidence after the property developer’s debt problems rocked global markets. The PBOC added the most liquidity to the system since January Thursday, and financial regulators urged the company to take all possible steps to avoid a short-term default on its dollar bonds.

“The PBOC proactively manages liquidity management in the interbank market by adapting to changing market demand,” said Winson Phoon, head of fixed income research at Maybank Kim Eng Securities Pte Ltd. in Singapore. “But overall it’s still a clear need considering the interaction between the end of the quarter and the Evergrande event”

The authorities tend to loosen their grip on liquidity towards the end of the quarter due to increased demand for liquidity from banks for regulatory controls. Lenders also need to accumulate more funds ahead of the week-long China vacation in early October.

The overnight redemption rate, an indicator of short-term interbank borrowing costs, slipped 26 basis points to 1.74% on Friday, the lowest in more than a month. The rate over the seven-day term climbed 10 basis points.

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