China’s money rates rise on month-end seasonal factors
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Driven by seasonal factors, China’s primary money market rates were up slightly last week, despite the central bank’s net injection of 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 2.7855 percent last Friday, around 2 basis points higher than the previous week’s closing average rate of 2.7683 percent.
Cash conditions had a slightly tightening bias for the past week, which was caused by month-end demand from banks for funds to meet regulatory requirements, a trader at a Chinese bank in Shanghai said, noting the central bank was keen to keep the overall liquidity “not too loose, not too tight.”
Over the past week, the People’s Bank of China (PBC) injected a net 280 billion yuan ($41.50 billion) into the market via its reverse bond repurchase agreements, down from a net injection of 510 billion yuan a week earlier.
The weekly net cash injection was lower because 138.5 billion yuan worth of mediumterm lending facility ( MLF) loans matured last Monday, draining cash out of the market.
The PBC injected 360 billion yuan worth of MLF loans earlier this month to offset a total of 357.5 billion yuan worth of MLF loans that matured this month.
Some traders say they are not particularly optimistic for cash conditions in early August because of the maturing of large numbers of reverse repos.
Maturing PBC reverse bond repurchase agreements are set to drain 750 billion yuan out of the market this week, according to Reuters’ calculations.
Some market watchers said the PBC has managed banking system liquidity throughout July by “cutting the peaks to fill in the valleys.”
They noted that the authorities injected funds to ensure liquidity when some temporary and seasonal factors weighed on the market, but kept overall conditions steady because stability and deleveraging in the financial markets were top priorities for this year.
Larry Hu, head of China economics at Macquarie Securities in Hong Kong, expects liquidity conditions to improve in the second half of this year.