SHANGHAI, July 29: China’s money rates rose sharply on Monday as small banks scrambled to top up their cash reserves before the end of the month while big banks held off from lending, traders said.
A dealer at a foreign bank in Shanghai said that conditions were tight but the community widely expected them to relax slowly over the course of the next few days.
‘Part of the reason is month-end factors, part is because the big banks aren’t lending funds much, so the market is presently quite nervous,’ he said.
He added that although prices did appear high, transaction volumes were relatively thin because the largest banks were holding off from dealing.
Chinese corporations and banks are stocking up on cash to make dividend payments and massage mandated loan-to-deposit ratios before the end of the month, putting cyclical upward pressure on rates.
The volume-weighted average price of the seven-day bond repurchase agreement opened with an unusually early quote of 5 percent at 9:22 a.M. Local time (0122 GMT). Traders said the rate was high but not particularly so given month-end factors, and it was followed up by multiple quotes in the same range.
The benchmark weighted-average seven-day bond repurchase rate jumped to 5.08 percent by midday, up 66 basis points from a previous close of 4.41 percent.
The overnight rate rose to 3.75 percent from 3.60 percent, while the 14-day tenor advanced to 5.5159 percent from 4.8730 percent.
Investors in adjacent markets are particularly sensitive to Chinese short-term money rates after tightness in the interbank market in June — some tenors were priced as high as 30 percent — caused a cash crunch for banks and set off a slide in mainland stock indexes.
China’s interbank market frequently sees unusually high quotations toward the end of the month, usually from smaller banks or rural cooperatives short on cash.
An unusually high 6 percent quote for an overnight repo contract between two rural cooperatives on July 18 startled investors and resulted in both banks being disciplined publicly by the central bank.
The central bank is set to allow 85 billion yuan ($13.86 billion) to enter the interbank market this week through maturing bills. It has injected a net 33 billion yuan this year. (AGENCIES)
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