China's primary money rates eased this week as funds released from a reduction in some banks' reserve requirements boosted market liquidity. The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity in China, was 2.9177 percent on Friday afternoon.
That was 1.1 basis points below the previous week's closing average rate of 2.9225 percent. The Shanghai Interbank Offered Rate (SHIBOR) for same tenor fell to 2.8420 percent, 4.9 basis points lower than the previous week's close. The one-day or overnight rate stood at 2.5169 percent and the 14-day repo stood at 3.9055 percent.
The People's Bank of China (PBOC) chose to skip open market operations for a second consecutive day on Friday. It said banking system liquidity was "relatively high" despite having drained a net 320 billion yuan from the market for the week, compared with a net injection of 590 billion yuan a week earlier.
A previously announced cut in the amount of cash some Chinese banks must hold in reserve offset the drain, and helped banks to absorb maturing repos. The reduction in the reserve requirement ratio (RRR), announced last September, became effective on Thursday following a PBOC statement on its official Weibo account last week.
The cut reduced reserve requirements for banks that meet certain criteria for lending to small business and the agricultural sector, and is intended to support the development of "inclusive" financial services, the PBOC said last year. Following the cut, market liquidity "had a looser bias," CIB Research analysts said in a note. "The loose liquidity environment should continue through the end of the month," the analysts said.
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