China’s money rates fall; liquidity may tighten by month end

By: | Published: March 10, 2017 12:42 PM

Primary money market rates in China fell for the week on Friday due to few signs of pressure on liquidity, prompting the central bank to skip its open market operations for two straight days.

The PBOC drained a net 110 billion yuan (.92 billion) for the week, compared with a net drain of 280 billion yuan a week earlier. (Reuters)

Primary money market rates in China fell for the week on Friday due to few signs of pressure on liquidity, prompting the central bank to skip its open market operations for two straight days. The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, a key indicator of general liquidity, was 2.4889 percent, more than 12 basis points below the previous day’s closing average rate. For the week, the rate was around 1 basis point down from last Friday’s average close. Money supply and demand were balanced for the week, even “with some slight loosening bias” in the market, traders said. A Shanghai-based trader at a Chinese bank said market sentiment has not worsened after the central bank skipped its open market operations for two straight days this week. The People’s Bank of China (PBOC) skipped reverse repurchase agreements operations for a second straight day on Friday in order to keep liquidity stable in the banking system.

“There are a few factors improving the liquidity recently,” the People’s Bank of China (PBOC) said in a statement on its website.

The PBOC drained a net 110 billion yuan ($15.92 billion) for the week, compared with a net drain of 280 billion yuan a week earlier.

In medium-term lending facility, the central bank lent 194 billion yuan of such loans on Wednesday, with a same amount of them maturing on the day.

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The MLF is a supplementary policy tool that the PBOC uses to manage liquidity conditions and medium-term interest rates in the banking system and money markets.

Liquidity may tighten further as central bank’s quarterly assessment is approaching, some market participants and analysts noted.

Reuters reported on Thursday that China’s central bank plans to tighten capital adequacy requirements by scrapping an intermediate category while assessing some commercial banks during the current quarter citing sources.

Analysts said the move is likely to create uncertainty and pressure liquidity by the end of the month. Separately, Zhou Xiaochuan, governor of the PBOC said on Friday that China’s monetary policy is prudent, neutral and the central bank has many tools at its disposal.

China will not deliberately seek to include its bond market in global indexes, he added.

The Shanghai Interbank Offered Rate (SHIBOR) for the seven-day tenor fell to 2.6550 percent, 0.40 basis point from the previous close. For the week, the rate was also down 0.40 basis point.

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