SHANGHAI, May 8: China’s money rates fell on Wednesday on expectations that the People’s Bank of China will allow a net injection of funds this week, shrugging off speculation that central bank is considering a resumption of bill issuance to counter hot-money inflows.
Dealers reported that the PBOC asked primary dealers for their demand for three-month bills on Wednesday morning. The PBOC has not issued any bills since late 2011, relying instead on short-term repos and reverse repos to keep money in the system.
However, traders who spoke to Reuters did not believe that the change signalled an overall tightening, rather an attempt to counter strong inflows of speculative hot money that have begun to distort China’s exchange rate and trade data.
‘I think it is quite a reasonable action as liquidity has been very ample, so issuing more bills is actually an improvement,’ said a dealer at a major state-owned bank in Beijing.
There are 230 billion yuan worth of previously issued bills set to mature in May which would inject funds into the market.
The volume-weighted average of the unofficial benchmark seven-day repo stood at 2.9789 at midday, down from 3.1784 at close on Tuesday. The overnight rate fell to 2.1147 from 2.3620, while the 14-day rate posted a milder decline.
‘We still need to wait to see what the market impact is of the new announcement; it depends on the amount and the price the central bank sets for these bills, ‘ said a dealer at a state-owned bank in Beijing.
‘However, I don’t think demand for these instruments will be strong.’
(AGENCIES)
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