Photo: Bloomberg

Photo: Bloomberg

Rates fall as China money market shrugs off PBOC fund drain

Rates fall as China money market shrugs off PBOC fund drain

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 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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