HONG KONG, Dec 14: China’s key seven-day money rate rebounded on Friday morning from a two-week intra-day low on Thursday, though traders said that borrowing conditions remained loose.
The benchmark weighted-average seven-day bond repurchase rate rose to 3.0040 percent from 2.6789 percent at the close on Thursday.
Money rates have been pulled in opposite directions this week, as a year-end cash squeeze puts upward pressure on demand, while suspected central bank intervention in the forex market pumped more yuan into the system, easing supply.
‘It’s quite strange really that the rates have gone up today as borrowing conditions in the market still seem pretty loose,’ said a trader at a commercial bank in Shanghai.
‘Over the year-end, people are very willing to lend so demand pressure is not all that great.’
The 14-day repo rate edged up to 3.0182 percent from 2.9734 percent, while the one-day rate fell slightly to 2.2653 percent from 2.2843 percent.
The 21-day rate shot up 67.18 basis points to 4.3684, its highest level since late October, though traders say that low volume of trading at the tenor means the rate can be moved by a small number of transactions.
Rates had fallen widely earlier in the week as foreign exchange traders suspected that the People’s Bank of China had intervened in the forex market to rein in yuan spot rate appreciation, leading to a rash of dollar-buying by major state-owned banks.
Such dollar purchases boost yuan liquidity, as the PBOC uses newly-created yuan to buy dollars.
Though there is no hard evidence that the central bank is directing the market, traders say the pattern of major state-owned banks aggressively bidding for dollars – as seen earlier this week – is a likely sign of central bank involvement.
They say the bank had become uncomfortable with strong yuan appreciation, which would likely have extended into December had the central bank not forcibly restrained further growth by holding back the official midpoint.
The PBOC put the brakes on rate falls through a weekly net 125 billion yuan drain from the market through open market operations, the largest net drain in nearly two months. (agencies)
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