THE central bank yesterday restarted the use of an instrument that adds cash to the financial system, helping ease liquidity concerns before US$153 billion in funds come due this week.

    The monetary authority sold a total 100 billion yuan (US$14.5 billion) in reverse repurchase agreements, the first auction after a six-day pause, a statement posted on its website showed.

    While the open market operations resulted in a net withdrawal of 90 billion yuan because of maturing contracts, the resumption signals that policymakers don’t want a sudden tightening of money supply, according to Bank of Tokyo-Mitsubishi UFJ (China) Ltd.

    The People’s Bank of China last week allowed 625 billion yuan in reverse repos to mature, mopping up cash after adding record funds in the days before the Lunar New Year holidays.

    Some 900 billion yuan in the contracts are set to mature this week, as well as 151.5 billion yuan in loans under the Medium-term Lending Facility (MLF). That adds up to 1.05 trillion yuan, or US$153 billion.

    “The central bank restarted the use of reverse repos to stabilize market sentiment because large maturities are on the way,” said Li Liuyang, a Shanghai-based market analyst at Bank of Tokyo-Mitsubishi UFJ (China). “The net result will probably continue to be a withdrawal this week, but the pace will be controlled to avoid any crunch. We also expect it to conduct MLF, given the maturities.”

    The central bank sold 20 billion yuan in seven-day reverse repos, 30 billion yuan in 14-day contracts and 50 billion yuan in 28-day loans.

    The rates were unchanged from the previous sale at 2.35 percent, 2.50 percent and 2.65 percent, respectively. This is the first auction after the central bank increased the costs of such funds by 10 basis points Feb. 3, following the Lunar New Year holidays. (SD-Agencies)