China’s money rates extend climb as PBC siphons liquidity

Source:Reuters-Global Times Published: 2017/8/27 17:23:39

China's key money rates spiked for the past week as the central bank conducted its biggest drain in nearly two months, tightening liquidity as it extends its campaign against riskier types of financing. 

While conditions eased slightly on Friday, analysts said tighter cash conditions had forced non-bank financial institutions to deleverage as those lenders usually use short-term funds to meet their leveraged investment needs.

The volume-weighted average rate of the benchmark 14-day repo traded in the interbank market, considered one of the best indicators of general liquidity in China, surged to its highest in five months on Wednesday.

The 14-day repo eased on Friday, trading at 4.1625 percent.

The 7-day repo rate also rose for the past week and stood at 2.9344 percent on Friday afternoon, more than 6 basis points higher than the previous week's close.

In open market operations, the People's Bank of China (PBC) refrained from injecting net funds into the money market for the entirety of last week, draining a net 330 billion yuan ($49.52 billion) in five days - matching the amount drained in the last week of June.

The PBC said in a statement that liquidity in the banking system was "appropriate" following factors, including liquidity injection from "fiscal expenditure, deposit auctions and the refund of financial institutions' reserve payment" to counter maturing reverse repos.

A trader at a Chinese bank said cash conditions were "very tight" in the middle of last week but improved Friday and expects the situation to remain tight for the rest of the month.

A large number of Negotiable Certificates of Deposit - a popular bond instrument used by smaller lenders - will mature this month and next while commercial banks' excess cash reserves remain low.

Several traders said the market is expected to focus on open market operations this week as the finance ministry is due to roll over 600 billion yuan worth of special treasury bonds on Tuesday, when the PBC may inject additional funds.

Posted in: MARKETS

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