China’s money rates ease as seasonal factors fade
China’s primary money rates eased last week as liquidity conditions improved following the month- end peak demand for cash and even as the central bank drained funds.
The volume- weighted average rate of the benchmark seven- day repo traded in the interbank market, considered the best indicator of general liquidity in China, was 2.7725 percent last Friday, more than 8 basis points lower than the previous week’s closing average rate at 2.8543 percent.
Traders said cash conditions in the money market were balanced with a tightening bias.
One trader at a Chinese bank said although seasonal factors had faded, the central bank’s unwillingness to inject net cash into the market over the past week had driven market participants cautious.
Over the past week, the People’s Bank of China ( PBC) drained a net 40 billion yuan ($ 5.95 billion) from the market via its reverse bond repurchase agreements, compared with a net injection of 280 billion yuan a week earlier.
Lu Zhengwei, chief economist at Industrial Bank in Shanghai, said the PBC’s switch to net cash drain via open market operations did not mean a change in monetary policy.
Banks usually shore up their cash positions at the end of the month to meet regulatory requirements, which drains funds from the banking system. Cash conditions in the money market traditionally get tight during that period, but they ease at the beginning of the month.
Some market watchers said the PBC had now managed banking sys- tem liquidity by “cutting the peaks to fill in the valleys,” paying close attention to changes in cash conditions in the market.
Ming Ming, analyst at CITIC Securities, said in a note last Friday that he expects monetary policy and financial regulations to “stabilize” in the second half of this year.
He said money rates would “hardly surpass the highs reached earlier this year,” noting that tightened financial regulations and the country’s deleveraging campaign had sent key money rates to two- year highs at the end of April.