Chinese bill and bond yields were mostly flat on Friday in quiet pre-holiday trade after the central bank said in a report that it would ensure stable economic growth while controlling inflation expectations. Traders interpreted the report as largely in line with previous market expectations for monetary policy to gradually normalise from the ultra-loose stance that was put in place to fight the global financial crisis.
The indicative five-year government bond yield was flat at 2.9700 percent bid, according to Reuters Reference Rates. But traders said that even when funds return to the system after the holiday, the repo rate may only fall to about 1.5 percent, an unofficial floor for the rate, compared to a low of about 1.3 to 1.4 percent in January.
In a research note on Friday, China International Capital Corp predicted the PBOC would raise banks' reserve requirement ratios (RRR) by 50 basis points after the holiday and before the end of March, partly to manage inflation expectations. Annual consumer price inflation fell to 1.5 percent in January from December's 1.9 percent but most traders believe the dip was distorted by the variable timing of Lunar New Year, which fell in January last year. The 90-day central bank bill yield was flat at 1.4173 percent on Friday.
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