SHANGHAI, July 13: China’s short-term lending rates climbed higher on Friday on worries that bank dividend payments due this month will cramp interbank liquidity.
The benchmark seven-day weighted average bond repurchase rate gained 15.03 basis points to 3.3407 percent at midday, notching its first rise this week and returning the rate to near the level of Monday’s close.
The overnight rate rose by 9 bps to 2.4910 percent, close to where it closed last week.
‘Conditions are a bit tighter today. Not much money on offer,’ said a trader at a city commercial bank in east China.
The big four banks, with their large deposit base drawn from their far-reaching physical branch network, are the largest net lenders in China’s interbank market.
But at least two of the ‘big four’ state-owned commercial banks are due to pay their 2011 annual dividends to Central Huijin Investment, the government’s holding company for state-held shares in Chinese financial institutions.
These dividends will likely be paid later this month, traders say, sucking some liquidity out of the system as Huijin deposits the proceeds with the central bank.
Traders continue to expect a cut in banks’ required reserve ratio (RRR) later this month, especially if conditions tighten markedly.
Longer rates remain at low levels. Benchmark five-year interest rate swaps reached a fresh three-year low of 2.55 percent at midday on Friday, down one basis point from Thursday’s close.
GDP data released on Friday showed China’s GDP grew 7.6 percent in the second quarter, its weakest pace in more than three years, reinforcing expectations that monetary policy will be kept loose.
The bond market was mixed following the GDP data, with some tenors up and others down. But with yields having fallen precipitously since the central bank cut RRR in mid-May, bond traders say they have little room to fall further.
‘Easing was priced in a long time ago, and recently some banks have started to take profits,’ said a bond trader at a major state-owned bank in Shanghai.
(agencies)
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