SHANGHAI, May 17: China’s money rates rose slightly on Friday, with the key seven-day repo rate hitting its highest level in three weeks as market players worried about upcoming tax payments and the potential for further funds drains from the open market.
The central bank drained funds on a net weekly basis for the first time in four weeks this week, after reintroducing 3-month bills as a money supply management tool after a 17-month hiatus.
Dealers said they expected that the People’s Bank of China will continue to use three-month central bank bills to drain funds over the near term but believe it is unlikely the bank will return to issuing tenors of a year or longer.
The weighted average of the benchmark seven-day repo jumped 42 basis points (bps) to 3.63 percent by midday, from 3.21 percent on Thursday.
The 14-day rate gained 39 bps from Thursday’s 3.61 percent, and the overnight rate rose to 2.86 percent from 2.72 percent.
Chinese firms must pay estimated corporate income tax each month, but must also balance their quarterly and annual taxes during a subsequent grace period. Annual tax payments for the previous year are typically balanced in April and May.
(agencies)
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