SHANGHAI, Aug 9: China’s key money rate was little changed on Thursday after the People’s Bank of China (PBOC) injected funds into the market via seven-day reverse repos, extending its recent pattern of maintaining liquidity through the use of short-term instruments.
China’s central bank injected 50 billion yuan into the money markets through seven-day reverse bond repurchase agreements at a yield of 3.35 percent on Thursday. A total of 50 billion yuan reverse repo are due to mature on Thursday.
‘Today’s open market operation has totally offset the maturity of the repos from last Thursday, so there is little impact on monetary conditions’ said a dealer at a city commercial bank in Shanghai.
Market players widely expect the central bank will cut the required reserve ratio (RRR) in August. However, some dealers said the PBOC could wait until September in a bid to head off the traditional quarter-end funding squeeze.
China’s annual consumer inflation fell to 1.8 percent at a 30-month low in July, which gives room for the central bank to ease policy to support China’s economy.
‘It’s more helpful and useful to cutg RRR in September as almost all the banks are lacking money during the quarter-end,’ said the dealer at a city commercial bank.
‘If it cut RRR for now, it may still need re-start the repos to drain funds bank, so it doesn’t make sense,’ he said.
Money market conditions often tighten near month-end or quarter-end as banks stockpile cash on expectations of heavier customer withdrawals and to meet required regulatory thresholds.
The benchmark seven-day repo rate was at 3.2955 percent at midday, inching up from 3.2616 at Wednesday’s close, while the overnight rate rose 4.87 basis points to 2.6048 percent.
The 14-day rate fell 4.68 bps to 3.3403 percent from 3.3871 percent on Wednesday.
(agencies)
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