China's Liquidity Injections Fail to Ease Money Market Squeeze
China's central bank has injected 84 billion yuan ($11.6 billion) of short-term funds into the money market, but the move has done little to alleviate liquidity tightness.
Money market rates remain elevated, with the seven-day repo rate rising 14 basis points to 2.2% and the overnight repo rate near an eight-month high. Government bond yields have also edged up.
The People's Bank of China (PBOC) has tolerated higher repo rates this year to support the yuan amid economic headwinds. However, this has pressured the bond market, with the 10-year benchmark yield reaching its highest level since December.
Despite the cash injection, onshore liquidity conditions remain tight, with traders reporting overnight funding rates as high as 2.5% for some financial institutions.
The PBOC's tightening stance has been driven by concerns over yuan stability and its impact on the bond market. However, higher borrowing costs may also hinder economic growth, which has been weakened by the ongoing trade war with the United States.
The PBOC has hinted at a flexible approach to monetary policy, indicating that it may adjust policies based on economic and financial conditions.