SHANGHAI, June 3: China’s money rates were mixed on Monday but remained relatively high on concern that the People’s Bank of China is moving to tighten funds in the market, dealers said.
Short term rates began climbing early last week in the run-up to the end of the month, ending at multi-week highs. Traders consider rates close to 3 percent indicative of relatively accommodative conditions, but rates have for the most part remained over 4 percent in recent trading days.
Traders are increasingly worried that the PBOC is preparing to conduct ‘fine tuning’ in the interbank market, draining funds to put upward pressure on rates as part of a campaign to slow the unheathly forms of credit growth that appear to be focusing on speculative strategies instead of investment in the real economy.
The shortest overnight rate gained 8 basis points from 4.53 percent to 4.61 percent on Monday morning, its highest level since February 2012. The 14-day contract also rose to 4.80, up from 4.76 on Friday’s close.
The weighted average of the benchmark seven-day repo dropped by 18 basis points to 4.63 percent around midday, down from 4.81 percent on Friday.
Dealers said they originally expected rates to relax significantly on Monday given that month-end factors stressing liquidity – namely tax payments and ratio requirement payments due May 31 – had passed.
‘Rates are much higher than we expected,’ said a dealer at a Chinese commercial bank in Shanghai. ‘The market has felt some changes in direction, the central bank might really be preparing to tighten market funds.’
Last week, the PBOC drained 17 billion yuan ($2.77 billion) via open market operation, and dealers said they are waiting for signs of the PBOC’s intentions from open market operation this week.
‘If the central bank continues to drain funds this week, it probably means they are tightening up overall,’ said the Chinese bank dealer.
Chinese equity and money markets have proven highly sensitive to moves by the PBOC suspected to herald a switch to tightening policy.
(AGENCIES)
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