China money rates fall on expectation of more liquidity

SHANGHAI, May 9: China’s money rates fell on Wednesday, with the key seven-day repurchase rate slumping nearly 40 basis points on expectations that the central bank will inject more liquidity into the financial system.

The People’s Bank of China earlier asked commercial banks about their demand for seven-day bond repurchase agreements, traders said, implying the central bank may auction reverse repos on Thursday.

Reverse repos inject short-term liquidity into the financial system.

‘There’s plenty of liquidity, so we are willing to lend money for now,’ said a dealer at an Asian bank in Shanghai. ‘Tomorrow we still have 60 billion yuan deposits being auctioned, so money conditions will not be tight in the near term.’

Dealers said the central banks’ behavior has led traders to anticipate more flexibility in the central bank operations going forward.

‘The central bank may use more flexible tools to inject funds into market, rather than cutting reserve requirement ratios, which will cause a big injection,’ said a dealer at a Chinese bank in Shanghai.

China’s finance ministry will auction 60 billion yuan ($9.51 billion) of six-month deposits to commercial banks on Thursday, which will largely offset the impact of a 65 billion yuan of reverse repos which will mature this week. Maturing reverse repos drain liquidity.

The weighted average of the benchmark seven-day repo rate slumped to 3.3273 percent from Tuesday’s close of 3.7014 percent.

The one-day rate fell to 2.4019 percent from 2.4816 percent, while the 14-day repo rate fell to 3.7616 percent from 3.8036 percent.

Chinese interest rate swaps fell on Wednesday, with the fall in money rates, while the benchmark five-year IRS dipped 3 basis points to 3.34 percent.

One year IRS fell to 2.23 percent while the 10-year IRS was down 2 bps to 3.45 percent.(agencies)


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