SHANGHAI, Dec 18: China’s benchmark seven-day bond repurchase agreement rate on Thursday rose to more than 4 percent for the first time since July on a weighted average basis, showing increasing pressure on liquidity as the year winds down.
‘Liquidity condition is very tight. Companies borrowing money to pay taxes and the 12 companies launching IPOs are both pushing up money rates,’ said a trader at a Chinese commercial city bank in Shanghai.
The rise comes after the central bank abstained from open market operations on Thursday, neither injecting nor draining funds for the week.
The end of the year typically sees short-term pressure on liquidity as banks and corporates accumulate funds to pay taxes, polish balance sheets and meet regulatory ratios. Traders say customers are also hoarding cash to participate in coming initial public offerings on China’s surging stock market.
Twelve Chinese companies have started to prepare IPOs on Shanghai and Shenzhen stock exchanges. Some local financial institutions estimate the offerings will lock up as much as 1.5 trillion yuan ($241.30 billion) in liquidity. Traders forecast that the tight liquidity conditions could be eased in the near term if the central bank injects money via fiscal deposits – a policy tool they have resorted to in December when liquidity is tight. China’s central bank has issued short-term funds to some local banks to ease liquidity strains and has also renewed some banks’ medium-term lending facilities that have expired, two sources with direct knowledge of the operations said on Wednesday.
(AGENCIES)
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