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UPDATE 1-China money market rates stabilise as c.bank steps up efforts to boost economy
September 18, 2014 / 5:12 AM / in 3 years

UPDATE 1-China money market rates stabilise as c.bank steps up efforts to boost economy

(Rewrites with details, economist quote, background)

By Lu Jianxin and Kazunori Takada

SHANGHAI, Sept 18 (Reuters) - China’s money market rates stabilised on Thursday, with shortest funding costs slipping, after the central bank stepped up efforts to shore up the faltering economy.

The People’s Bank of China (PBOC) on Thursday lowered the yield of its bond repurchase agreements in its open market operations for the first time since July.

The PBOC has not confirmed nor denied media reports on Wednesday that it was pumping 100 billion yuan ($16 billion) each into the top five banks via a short-term lending facility, known as a Standing Lending Facility (SLF). But traders said an abundance of funds in the money markets appeared to point to large cash injections.

The reported move by the PBOC helped support global shares and commodities on Wednesday as investors took it as a sign that Beijing was stepping up its efforts to underpin the economy which is showing signs of slowing growth.

“Recent economic data, including today’s property figures, are really disappointing,” said ANZ economist Zhou Hao in Shanghai.

“So the PBOC is taking the precaution of easing lest economic growth in the second half of this year risks falling below 7 percent,” he said.

In the latest of a slew of weak data, China home prices fell in August for a fourth straight month, underlining a deepening downtrend in the property market that is increasingly weighing on the broader economy.

In the money markets, the weighted average of the benchmark seven-day bond repurchase agreement slipped 2 basis points to 3.35 percent by midday, while the average of shortest one-day repo rate slipped 1 basis point.

However, the 14-day repo rate, which covers the upcoming peak of fund demand at the end of the quarter, rose 10 basis points to 3.68 percent.

Traders said rates may still have the potential to rise due to pent-up demand for cash at the quarter-end and from a slew of initial public offerings, and that the PBOC may conduct more SLFs and other injections to shore up funds.

China launched the SLF tool in early 2013 to help the markets to iron out short-term liquidity squeezes of up to three months.

In its last major SLF operations in mid-January, ahead of seasonal demand of a long holiday and a large number of IPOs, the PBOC announced it injected short-term funds into large banks but did not specify the amount, although it did announce an injection of 120 billion into small banks.

The central bank has said it will only announce the summary of its SLF operations at the end of each quarter. Its first quarter SLF report said it injected a combined 290 billion yuan into the market in January.

“Our bank is busy this morning lending with so much money in the market now,” said one trader at a Chinese commercial bank in Shanghai.

“I suspect that the reported SLFs have at least partially been done, and the money is already in the market,” he said, referring to the lending facility.

A traders at a foreign bank in Shanghai said that liquidity has been improving since Wednesday afternoon.

In open market operations on Thursday, the PBOC lowered the yield for its 14-day repos by 20 basis points to 3.5 percent from Tuesday’s 3.7 percent - another sign the central bank is trying to keep market interest rates relatively low. It has kept the yield on the 14-day repos unchanged since late July.

The central bank drained 10 billion yuan from the money markets through 14-day repos on Thursday, but for the week, it will inject a net 8 billion yuan versus a net drain of 5 billion yuan last week. ($1=6.1444 Yuan) (Editing by Kim Coghill)

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