PBOC state­ment gives eq­ui­ties slight boost

China Daily (Canada) - - BUSINESS - By GAO CHANGXIN gaochangxin@chi­nadaily.com.cn

Chi­nese stocks edged higher on Thurs­day af­ter the cen­tral bank sent a sub­tle eas­ing mes­sage amid slid­ing money mar­ket rates.

Gains by large en­ergy com­pa­nies pushed the bench­mark Shang­hai Com­pos­ite In­dex up 0.3 per­cent to 2,047 points, fol­low­ing a 0.35 per­cent in­crease on Wed­nes­day.

The CSI 300 In­dex, which in­cludes the largest stocks on both the Shang­hai and Shen­zhen ex­changes, dropped 0.43 per­cent to 2,154 points.

The People’s Bank of China said in a state­ment through the Xin­hua News Agency on Wed­nes­day that bank­ing liq­uid­ity is “mod­er­ate”. Nonethe­less, it drained 60 bil­lion yuan ($9.8 bil­lion) from the mar­ket through open mar­ket op­er­a­tions.

It has drained a net 260 bil­lion yuan over the past two weeks through re­pur­chase trans­ac­tions.

Many in­ter­pret the op­er­a­tions as the on­set of an­other round of tight­en­ing, but the PBOC state­ment de­scribed the op­er­a­tions as a post-Lu­nar New Year “rou­tine”. It said: “The repo oper­a­tion is sea­sonal and not a change of mon­e­tary pol­icy.”

The bank also said that money mar­ket rates are at a “rea­son­able level”, al­though re­cent de­clines sent rates to near-his­toric lows. “This mes­sage in­di­cates to us that the mon­e­tary stance has been loos­ened subtly for now. There is an in­cen­tive for the PBOC to keep it loose from now un­til at least the end of the Na­tional People’s Congress,” Zhang Zhi­wei, an

There are signs show­ing that the cen­tral bank may use the low short-term in­ter­est rate to en­sure eco­nomic growth” HUANG HAI AN­A­LYST OF SDIC CGOG FU­TURES CO LTD

is drained by PBOC through open-mar­ket op­er­a­tions on Wed­nes­day an­a­lyst with No­mura Se­cu­ri­ties Co Ltd, wrote in a re­port on Thurs­day.

He added that pol­icy eas­ing may ac­cel­er­ate if macroe­co­nomic data sched­uled for re­lease on March 13 dis­ap­points, while main­tain­ing his fore­cast that the PBOC will cut the re­serve re­quire­ment ra­tio by 50 ba­sis points in the sec­ond quar­ter.

China Petroleum & Chemical Corp, known as Sinopec, jumped 6.71 per­cent in Shang­hai af­ter lo­cal me­dia re­ports said it will un­der­take fur­ther re­struc­tur­ing next month.

The Gold­man Sachs Group Inc boosted its fore­cast for Sinopec’s Hong Kong Shares, which rose more than 5 per­cent on Thurs­day.

PetroChina Co Ltd rose 2.52 per­cent in Shang­hai to 7.74 yuan per share. The CSI 300 In­dex, which in­cludes the largest stocks on both the Shang­hai and Shen­zhen ex­changes, dropped 0.43 per­cent to 2,154 points.

In a rare com­ment on the stock mar­ket, the PBOC said that re­cent de­clines weren’t caused by its liq­uid­ity man­age­ment, be­cause liq­uid­ity is abun­dant. The Shang­hai in­dex lost 1.75 per­cent on Mon­day and 2.04 per­cent on Tues­day.

Money mar­ket rates have been drop­ping grad­u­ally over the past few weeks, with the bench­mark seven-day in­ter­bank re­pur­chase rate near record lows.

The rate snapped a 12-day los­ing streak on Thurs­day, jump­ing 34 ba­sis points to 3.43 per­cent, ac­cord­ing to a weighted aver­age com­piled by the Na­tional In­ter­bank Fund­ing Cen­ter. The overnight re­pur­chase rate was lit­tle changed at 1.75 per­cent.

Lu Ting, a Hong Kong-based econ­o­mist at Bank of Amer­i­caMer­rill Lynch, wrote in a com­men­tary that rates are still too low de­spite the jump on Thurs­day. The PBOC’s com­ments sent one-year in­ter­est-rate swaps down 13 ba­sis points on Thurs­day to 4.39 per­cent.

The swaps are a fixed pay­ment to re­ceive the float­ing seven-day re­pur­chase rate. The con­tract re­flects mar­ket sen­ti­ment on the di­rec­tion of in­ter­est rates. The swap rate was down as much as 23 ba­sis points ear­lier in the day at 4.30 per­cent, the low­est level since Nov 7 and the big­gest de­cline since June 26.

Huang Hai, an an­a­lyst with the SDIC CGOG Fu­tures Co Ltd in Bei­jing, said: “That the cen­tral bank thinks the liq­uid­ity mod­er­ate when the mar­ket in­ter­est rate is low means the cen­tral bank may use a low short-term in­ter­est rate to en­sure eco­nomic growth.”

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