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Benchmark China money rate climbs as seasonal demand offsets PBOC injections
January 22, 2015 / 3:36 AM / 3 years ago

Benchmark China money rate climbs as seasonal demand offsets PBOC injections

SHANGHAI, Jan 22 (Reuters) - China’s main money market rate rose above a psychological resistance level on Thursday as short-term cash calls, boosted by demand ahead of a long holiday, offset injections by the central bank, traders said.

The weighted average of the benchmark seven-day repo rate climbed 14 basis points to 4.11 percent in late morning trade, breaching the 4 percent barrier for the first time since early January.

The People’s Bank of China (PBOC) injected 50 billion yuan ($8.05 billion) via seven-day reverse repurchase agreements in its regular open market operations on Thursday. It was the first PBOC injection via reverse repos since January 2014.

China is approaching the long Lunar New Year holiday, which this year begins on Feb. 19. The holiday often begins in January, the month when fund demand in Chinese markets usually hits an annual peak.

January is also a peak month for companies to pay the previous year’s income taxes.

Regulators are also pushing more initial public offerings (IPOs) into the stock market of late, making use of a recent bull run to give corporates more opportunities to raise funds. There is speculation a new batch of IPOs will be launched by the end of January, creating further demand for short-term funds.

“The PBOC came into the market to offer help for institutions to meet short-term demand,” said a senior trader at a Chinese state-owned bank in Shanghai.

“While expectations of the PBOC’s easing, such as banks’ reserve ratio and interest rate cuts, have lingering in the market for a long time, the latest PBOC moves to inject money do not signal these cuts will come sooner than expected,” he said.

In another sign of cool market reaction, China’s stock market slipped Thursday morning. Some analysts say one factor in recent share declines has been reduced availability of short-term funds.

One day before the PBOC’s Thursday open market operations, the central bank announced it had injected another 50 billion yuan worth of short-term loans into banks via a policy tool known as medium-term lending facilities (MLF).

The move followed data on Tuesday that showed the world’s second-largest economy grew 7.4 percent last year, the weakest rate since 1990.

However, traders said that the MLF operations were more in line with the government’s recent moves of targeted easing than a comprehensive monetary relaxation.

Premier Li Keqiang said on Wednesday that China’s economy was still under downward pressure in 2015 but would not suffer a hard landing.

PBOC governor Zhou Xiaochuan also said on Wednesday that China would be content with slower growth amid Beijing’s efforts to adjust and improve its economic structure.

$1=6.2 yuan Editing by Richard Borsuk

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