October 20, 2014 / 6:47 AM / 3 years ago

Chinese money rates unmoved by fresh cash injection

SHANGHAI, Oct 20 (Reuters) - Chinese money rates shrugged off news that the central bank is set to inject $33 billion worth of fresh credit to select banks through its standard lending facility (SLF), traders said.

The move comes as markets continue to closely monitor the central bank for signs that it is easing policy to prop up stagnating investment in the real economy.

Still, traders saw the latest SLF as primarily a defensive tactic to maintain money conditions in the face of forex outflows, upcoming income tax payments and a potential wave of IPOs - all of which tend to put significant pressure on short-term money supply.

“The latest PBOC move is a continuation of what the government describes as ‘targeted easing’ to help the markets to meet demand for funds,” said a senior trader at a major Chinese state-owned bank in Shanghai.

“However, the more the PBOC conducts targeted easing, the less it is likely to conduct an across-the-board easing via a cut in banks’ reserve ratios or interest rates that investors hope for,” she said.

“The latest SLF operations are really not something the markets could celebrate as a major monetary policy easing, with limited impact on market rates.”

The weighted average of the benchmark seven-day bond repurchase agreement stood at 2.96 percent on Monday afternoon, edging down 4 basis points (bps) from the close on Friday.

The 14-day rate, another actively traded tenor, was at 3.36 percent, inching up less than 1 basis point, while the overnight repo rate fell 4 bps to 2.44 percent.

Sources told Reuters that the People’s Bank of China is set to inject about 200 billion yuan ($32.66 billion) worth of three-month loans into five or six listed banks, in a move that some analysts said was intended to keep liquidity ample and support the slowing Chinese economy.

The move came after a 500 billion-yuan injection the central bank made into China’s top banks last month via its standard lending facility (SLF) in the form of three-month loans.

The SLF tool, similar to the U.S. Federal Reserve’s discount window or the European Central Bank’s marginal lending facility, allows banks to use the cash any time they need to, but banks may not use it if they do not feel the necessity for funds.

Chinese officials from Premier Li Keqiang to PBOC Governor Zhou Xiaochuan have said that the government is confident China’s economy will continue to grow at a “medium to high tempo”, forecasting growth of about 7.5 percent this year. They have consistently maintained that Beijing can do without aggressive steps to further support growth.

$1=6.124 Yuan 1 US dollar = 6.1234 Chinese yuan

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