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Rates fall as China money market shrugs off PBOC fund drain

Rates fall as China money market shrugs off PBOC fund drain
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First Published: Tue, Dec 13 2011. 11 30 AM IST

Photo: Bloomberg
Photo: Bloomberg
Updated: Tue, Dec 13 2011. 11 30 AM IST
Shanghai: Benchmark money market rates fell moderately on Tuesday, as the central bank’s liquidity drain failed to shake market expectations of easier money conditions ahead.
Photo: Bloomberg
The weighted-average 14-day bond repurchase rate fell 5.71 basis points to 3.5742% at midday, giving back roughly half of the previous day’s rise.
The benchmark seven-day repo rate fell 5.49 bps to 3.4831% at midday.
The People’s Bank of China (PBOC) is set to drain a total of 73 billion yuan ($11.5 billion) from the banking system through bill and repo issuances on Tuesday morning. With only 13 billion yuan ($2.04 billion) due to mature this week, PBOC’s action ensures a net drain of liquidity for the week, following last week’s 101 billion yuan drain.
Yet, traders expressed little concern about a possible year-end liquidity squeeze.
“This year conditions are quite obvious, and there are also expectations of further easing in the near future,” said a trader at a state-owned bank in Shanghai.
The fall in the 14-day repo rate, despite the central bank’s drain, likely reflects a correction over Monday’s relatively sharp 13-point rise.
Traders also expressed confidence that the PBOC would step in if signs of a liquidity crunch did appear.
“If things got really tight, the central bank would take action,” said a Shanghai-based trader at a city commercial bank.
The seven- and 14-day rates are now 19 and 22 points, respectively, above their recent lows on 5 December, the day the central bank’s reduction of the required reserve ratio for large banks took effect. But rates are still well below their highs of late November, when the 7-day rate reached 4.4138%.
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First Published: Tue, Dec 13 2011. 11 30 AM IST
More Topics: China | Yuan | Currency | PBOC | Bonds |