SHANGHAI, Nov 26: China’s short-term money rose on Monday as banks’ payments toward meeting regular reserve requirements put pressure on liquidity, but medium-term fell on expectations of an influx of government cash transfers into the system in the coming weeks.
The benchmark weighted-average seven-day bond repurchase rate rose 4.66 basis points to 2.8825 percent from 2.8359 percent at Friday’s close, while the overnight rate rose to 2.3084 percent from 2.2607 percent.
‘It’s hard to borrow overnight funds, the reason should be the RRR payment,’ said a dealer at a Chinese commercial bank in Shanghai. ‘But I don’t think it’s a long-term impact, the fiscal deposits should still help the money supply.’
Banks adjust their reserve deposits at the central bank on the 5th, 15th and 25th of each month in order to meet the RRR. Banks whose deposits have increased since the previous adjustment date must add to their reserves, which drains liquidity from the banking system.
The 14-day repo rate, however, fell to 3.3131 percent from 3.5143 percent, indicating expectations of ample liquidity in two weeks time.
A Reuters analysis shows that the Ministry of Finance is likely to pump a record high 1.6 trillion yuan into the system in the last two months of this year through the transfer of tax revenues out of the central bank and into commercial banks.
Traders said that they were focused on the central bank’s twice-weekly open market operations, which give guidance for the movement of rates.
Maturing central bank bills and bond repurchase agreements will drain a net 254 billion yuan ($40.77 billion) from China’s money market next week..
(agencies)
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