SHANGHAI, Mar 4: China’s money rates corrected on Monday after last week’s spike, but jitters over whether the central bank would inject or drain money on Tuesday kept the benchmark rate at an elevated level, traders said.
The weighted-average seven-day bond repurchase rate fell to 4.30 percent near midday from 4.43 percent at the close on Friday, which was its highest close this year. The central bank’s reluctance to inject money into the market last week caused rates to surge.
Dealers said money rates could fall further this week as liquidity will loosen after commercial banks make reserve requirement payments to the central bank on Monday.
Banks are required to adjust their reserves at the central bank on the 5th, 15th and 25th of each month on the based on the latest changes to their deposits. If deposits increase, they must add to reserves, while they receive refunds if deposits fall.
Dealers said banks attracted heavy deposit inflows in February, creating the need to increase reserves on Tuesday.
Liquidity is expected to loosen further later in March, a month when the Ministry of Finance traditionally steps up distribution of fiscal revenue to firms and individuals who benefit from government programs, traders said. That revenue swells deposits in the commercial banking system.
‘Funds were abundant in the morning,’ said a dealer at a Chinese state-owned bank in Shanghai. ‘But the market is worried whether the PBOC will drain or inject funds tomorrow.’
The central bank on Monday surveyed primary dealers about demand for both standard repos and reverse repos in advance of Tuesday’s open market operations, leaving uncertainty about whether it will drain or inject funds.
In its recent open market operations on Thursday, the People’s Bank of China neither drained nor injected funds into the money market, confounding widespread expectations that it would inject cash into the market due to a liquidity squeeze at the end of February.
On Monday, the overnight repo rate tumbled to 3.30 percent from Friday’s close of 4.1043 percent, while the 14-day repo rate dropped to 4.31 percent from 4.80 percent.
(agencies)
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