China’s primary money rates fall
SHANGHAI: China’s primary money rates fell for the week on few signs of liquidity stress in the market, which shrugged off the third straight weekly net cash drain led by the central bank, traders said.
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, closed at 2.8282% yesterday, down more than 11 basis points from the previous week’s closing average rate of 2.9408%.
Market participants said cash conditions were relatively loose for the week, leading to declines in money rates.
In the open market operations, the People’s Bank of China (PBoC) skipped reverse bond repurchase agreement for four days this week, noting “relatively high” levels of liquidity in the banking system.
That led to a net drain of 330 billion yuan (US$51.19bil) for the week. The previous week’s drain was 280 billion yuan a week earlier.
On Thursday, the PBoC injected 298 billion yuan into the financial system via one-year medium-term lending facility (MLF) loans, more than compensating for the 283 billion yuan of such loans that mature this month.
Two batches of MLF loans totalling 169.5 billion yuan matured on Thursday. Another batch of sixmonth MLF loans, for 113.5 billion yuan, matures on Sept. 16.
Traders said the net cash drain via reverse repos was not a concern to the market.
Although money rates fell this week, key gauges spiked in late August when the Chinese currency also strengthened against the US dollar, prompting some market talk on the possibility of monetary easing later this year.
Zhao Yang, chief China economist at Nomura International, said at a forum in Shanghai that he expected the monetary policy to remain neutral, and a cut in the banks’ reserve requirement ratio (RRR) is “unlikely”.
“There won’t be a reduction in the RRR this year, liquidity issue can be solved by using other methods, central bank would continue to use open market operations to inject liquidity,” Zhao added.