Analysts speculated the support could also postpone more aggressive easing measures that would hurt the weakening currency.
The People's Bank of China (PBOC) injected a net 840 billion yuan ($116.14 billion) through reverse repos in open market operations this week, the biggest cash injection since late September and the second highest this year. [CN/MMT]
The offerings effectively made up liquidity shortfalls, as corporates and financial institutions have to shore up their cash positions at the end of a month to meet various requirements and administrative checks.
The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, traded at 1.9669% on Friday afternoon, below the cost of the PBOC's reverse repos for the same tenor of 2.0%.
The higher injection was also likely to postpone the central bank's more aggressive monetary easing stimulus, as the yuan weakened sharply and depreciation pressure persisted, analysts at Founder Securities said.
"Monetary policy is mainly focused on the domestic situation, but domestic demand is weak while deflationary pressure has increased on the margin, so monetary easing is not over yet," they said in a note.
China's yuan touched a near 15-year low against the dollar at one point this week and has lost more than 12% this year. It looks set for the biggest annual drop since 1994 when China unified markets and official rates. [CNY/]
China, along with Japan, has been a major outlier amid global tightening to tame high inflation, with Beijing focused more on reviving a COVID-induced economic slowdown.
Holding off imminent easing could prevent further widening in policy divergence with other major economies, as the stark difference could stoke depreciation and capital outflow risks.
"China may avoid a more substantial yuan depreciation to prompt financial risks and downside pressure on the economy in Q4 2022 and early 2023," said Lian Ping, chief economist at Zhixin Investment.
"Monetary policy needs to remain prudent and it is not advisable to make further unnecessary adjustments in the loosening direction."
($1 = 7.2324 Chinese yuan)
(Reporting by Fang Wu, Winni Zhou and Brenda Goh; Editing by Robert Birsel)
