SHANGHAI, July 1: China’s money market rates eased this week after big fund injections by the central bank helped offset a seasonal shortfall at the end of the quarter. Liquidity in the country’s money markets is typically tight at end of a quarter as banks and other financial institutions need more cash to burnish their balance sheets and meet regulatory requirements. A central bank mishandling of such seasonal demand in June 2013 caused a sharp liquidity crunch in the market that roiled and damaged reputation of Chinese regulators at that time. Since then, however, the People’s Bank of China (PBOC) has strengthened the flexibility of its cash management while improving communication with the market to identify and iron out any potential fund shortfalls in a timely manner. “Thanks to the PBOC injections, the market has taken the seasonal demand in stride this time,” said a trader at a Chinese state-owned bank in Shanghai. 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 at 2.3 percent by midday on Friday, down 11 basis points (bps) from the end of last week. The one-day or overnight rate stood at 2 percent, down 3 bps on the week, and the 14-day repo changed hands at 2.81 percent, down 17 bps. The PBOC injected 50 billion yuan ($7.52 billion) into the money markets via its daily open market operations on Friday, meaning it will inject a net 180 billion yuan into the market for the week, after it already conducted a net injection of 340 billion yuan into the market last week. As the new month starts, the PBOC’s operations will turn increasingly mild, with less injections, and possibly drains from the market, traders said. Money market rates are expected to remain relatively stable, they said. Growth in China’s manufacturing sector stalled in June, an official survey showed on Friday, adding to expectations that Beijing will have to roll out more stimulus soon to boost the sluggish economy. However, traders said the negative news was offset by ample liquidity in the market and thus had little impact on market rates. China FX and money market guide: China debt market guide: SHIBOR rates: Reports on central bank open market operations: New Chinese debt issues: Prices for central bank bills, treasury bonds and sovereign bonds: Overview of China financial market data. (AGENCIES)
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