SHANGHAI, Feb 22: China’s key money rates rose for the fourth straight session on Friday, driven by this week’s record-high fund drain by the central bank, though traders expect rates to stabilize at or slightly above current levels.
The benchmark weighted-average seven-day bond repurchase rate rose to 3.10 percent near midday, up ten basis points over Thursday’s rate, after starting the week at 2.91 percent.
The overnight repo rate rose to 2.21 percent, up from 2.03 percent on Thursday and 1.85 percent at the start of the week.
Some analysts have interpreted the People’s Bank of China’s (PBOC) record high liquidity drain via open market operations this week as a sign of a shift towards monetary tightening, amid renewed warnings about rising home prices.
Chinese and Hong Kong stocks fell heavily yesterday after the PBOC completed a net 910 billion yuan ($145.82 billion) fund withdrawal on Thursday.
However, most traders say the open market operations this week was mainly aimed at offsetting liquidity inflows from other sources. These sources include the post-holiday surge in bank deposits and heavy forex purchases by the central bank.
Moreover, the extremely low levels at which rates began this week were unlikely to last long. The seven-day rate averaged 3.50 percent in 2012, while the overnight rate averaged 2.83 percent.
‘We think the central bank’s policy tends toward maintaining moderate liquidity. They don’t want things too loose or too tight. The seven-day rate will rise, but it won’t rise too much. Before this things were overly loose, so a bit of a rise is normal,’ said a trader at a major state-owned bank in Shanghai.
He expects the PBOC to keep the seven-day rate between 3 and 3.5 percent in the weeks ahead.
(AGENCIES)
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