SHANGHAI, Feb 7: China’s money rates rose for a second day on Thursday on demand for cash before the Spring Festival holiday, which will see markets close for a week, despite a record-high weekly net injection of 662 billion yuan by the central bank.
The People’s Bank of China (PBOC) injected 410 billion yuan ($65.79 billion) into market via 14-day reverse repo on Thursday after it injected 450 billion yuan on Tuesday, offset by 198 billion yuan worth of maturing instruments that drained cash.
‘The central bank sent a signal that it will continue to depend on open market operations to support market liquidity,’ said a dealer at Chinese commercial bank in Shanghai.
Some analysts had previously speculated the central bank would cut bank reserve requirement ratios (RRR) to help the financial system get over the holiday hump, but instead it has tried to preserve liquidity and keep rates down through massive short-term injections.
Several dealers also said that the central bank is expected to start using short-term liquidity operations (SLO) after the holiday, which will put additional downward pressure on money rates.
The benchmark weighted-average seven-day bond repurchase rate rose 36 basis points to 4.09 percent from 3.73 percent at the close on Wednesday.
Dealers said the jump in the seven-day repo was guided by a strong opening quote at the beginning of trade.
The high level of demand for the seven-day tenor was due to the upcoming market closure, which means that seven-day reverse repos will actually mature in 11 calendar days.
The 14-day repo rate was almost unchanged at 4.21 percent, and the one-day repo rate was little changed at 3.65 percent from 3.63 percent.
In the bond market, interest rate swaps (IRS) were also relatively flat on Thursday, with one-year IRS at 3.12 percent, up from Wednesday’s close of 3.11 percent, while the benchmark five-year IRS was unchanged at 3.73 percent.
(agencies)
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