PBOC injects cash to stabilize banking system amid yuan depreciation

6/26/2024 4:15:35 AM

(MENAFN) The People's bank of China (PBOC), the nation's central bank, has undertaken significant measures to inject liquidity into the banking system, aimed at maintaining an ample and stable cash flow within the financial sector. On Wednesday, the PBOC infused 250 billion yuan (USD32.21 billion) into the banking system through the 7-day reverse repurchase agreement mechanism at an interest rate of 1.8 percent. This follows a larger injection of 300 billion yuan (USD42.12 billion) through the same mechanism just a day earlier. The reverse repurchase mechanism, or reverse repo, involves the central bank purchasing securities from commercial banks with a commitment to sell them back in the future. This strategic move is designed to ensure that the banking system retains sufficient liquidity.

Simultaneously, the Chinese yuan has continued to experience a decline against the US dollar since the start of this week's trading sessions. The PBOC's indicative exchange rate for the yuan on Wednesday was set at 7.1248 yuan per dollar, marking a decrease of 23 pips from the previous day's rate of 7.1225 yuan. Under Chinese regulations, the yuan is permitted to fluctuate by up to 2 percent above or below the central bank's guide rate within the spot foreign exchange market each trading day. The indicative rate is determined based on the purchase prices submitted by major financial institutions prior to the commencement of daily interbank market transactions.

These measures underscore the central bank's proactive approach to managing liquidity and stabilizing the financial system amidst ongoing fluctuations in the exchange market. By injecting substantial funds and maintaining a close watch on the yuan's value against the dollar, the PBOC aims to navigate the complex dynamics of the global financial landscape and sustain economic stability.

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