China money rates drop sharply on week as c.bank lowers guidance

By
Daily Excelsior
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SHANGHAI, Mar 27:  Chinese money rates fell sharply for the second week in a row as the central lowered its guidance for the seven-day repurchase agreement (repo) and pressure on yuan liquidity from a rising dollar abated.     On Tuesday, the Chinese central bank adjusted its  guidance for the seven-day repo down 10 basis points to 3.55 percent, following a similar cut on March 17.     At midday on Friday, the volume weighted average yield  for the benchmark seven-day repo was trading at 3.90 percent. For the week, the seven-day repo was down 31 basis points, following a 50 point drop the week before.
The 14-day repo was also down for the week but less  sharply, falling 12 basis points to 4.36 percent.     Despite a series of easing measures by the Chinese  central bank since last November, short-term interbank rates had remained worrying high until the past 10 days.     Analysts cited lower central bank foreign exchange  purchases due to the rising dollar and short-term margin borrowing by speculators in China’s stock market as key reasons pushing short-rates up.
Several of these factors weighing on liquidity have  recently begun to abate.
The end of subscriptions for a slew of initial public offerings (IPOs) last week have ensured fresh liquidity flowed back into the money market, traders said.     ‘It’s easy to borrow money late this week after the  IPOs,’ said a dealer at a Chinese commercial bank last week in Shanghai.     Weakness in the dollar following the Federal Reserve’s latest policy meeting in mid-March also removed another source of pressure on yuan liquidity. And greater confidence in banks creditworthiness following the Ministry of Finance’s announcement of a one trillion yuan ($160.86 billion) local government debt swap may also be helping ease yields back down.     The People’s Bank of China (PBOC) cut interest rates on  Feb. 28 in its latest effort to support the economy as momentum slows, after its first rate cut in more than two years in November and a reduction in banks’ reserve requirement ratios (RRR) in early February.
Money market rates have been slow to follow policy rates lower, but now appear to be finally heading down. (AGENCIES)

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