SHANGHAI, Apr 26: China’s money rates staged a massive retreat on Friday, one day after the central bank conducted its first weekly net injection since February.
The volume-weighted average overnight rate shed over 129 basis points landing around 3 percent by midday. The seven-day rate sank from Thursday’s close of 4.99 percent to 3.55 percent, losing over 140 basis points, with the 14- and 21-day tenors posting similarly dramatic declines.
Rates had been rising steadily in recent weeks, with the unofficial benchmark seven-day bond repurchase agreement rate trading above 5 percent on Thursday, its highest level since Feb. 2012.
The People’s Bank of China had been steadily draining funds since markets reopened after a week-long holiday to mark the Lunar New Year in February, but this week it allowed a net weekly injection for the first time, allowing 124 billion yuan ($20.09 billion) to flow back into the system from maturing bills and forward repos.
As frequently happens in China’s interbank market, the market took a day to digest the change in liquidity conditions, but rates dropped dramatically on Friday morning, with the most commonly traded contract rates shedding over a full percentage point in a single day.
The change signifies a return toward the status quo neutral rate environment traders say regulators are attempting to maintain. Recent hikes in rates, they said, were provoked by a confluence of temporary factors, including upcoming tax payments and the three day holiday, which had put pressure on the short-term money supply.
(agencies)
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