SHANGHAI, Aug 13: China’s money rates rose on Tuesday after the central bank moved to sterilise the liquidity impact of maturing instruments on Monday, signalling its resolve to keep a floor under short-term money rates.
The People’s Bank of China (PBOC) announced on its website Monday after market close that it had issued 75.5 billion yuan ($12.33 billion) worth of three-year bills, effectively neutralising the effect of a near-identical tranche of bills maturing that day.
The PBOC followed up by issuing 11 billion yuan of seven-day reverse repos during open market operations on Tuesday morning, setting the guidance rate at 3.9 percent, down from 4 percent.
This combination of short-term injections and long-term drains highlights a new phase in the central bank’s money management tactics as it attempts to balance demand for short-term liquidity to keep cash in ATMs and provide operational liquidity for Chinese firms against increasing concern that domestic credit markets remain highly distorted.
The volume-weighted average of the benchmark seven-day forward repo contract moved steadily upward toward the guidance rate in morning trade, clocking in at 3.7243 in late morning trade, up over 4 basis points from Monday’s close.
The overnight rate also rose, breaking through 3 percent to 3.2426 compared to a close of 2.9877 on Monday. The 14-day contract also rose but then fell back to 4.1560, only 11 pips below Monday’s close.
(AGENCIES)
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