Chinese money rates fall

China's money rates dropped slightly this week from already low levels last week, buoyed by an abundance of liquidity in the markets amid fresh talk of regulatory cash injections, traders said. There was speculation on Thursday that the People's Bank of China (PBOC) had injected more than 10 billion yuan ($1.63 billion) into urban commercial banks via a new policy tool known as medium-term lending facility (MLF), traders said.
The PBOC is using this tool to help Beijing's targeted easing for chosen sectors, with the aim of preventing the world's second-largest economy from slowing too much.
The PBOC announces such injections only weeks or even months later in its quarterly monetary policy reports. Central bank officials have declined to comment on individual injections.
In addition, the finance ministry traditionally pours funds into the system through another opaque tool, fiscal deposits, during the last two months of a year.
"Cash calls were strong this week due to the APEC meetings, but they were easily satisfied due to an abundance of liquidity in the markets," said a trader at a Chinese commercial bank in Shanghai.
Regional leaders met for the Asia-Pacific Economic Co-operation summit in Beijing on Nov. 10 and 11. Such major political activities often see more cash demand from government departments and other related parties, traders said.
The weighted average of the benchmark seven-day repo rate was down 9 basis points at 3.09 percent by midday compared with the close last Friday, while the average one-day repo rate fell 6 basis points to 2.52 percent.
The 14-day rate slumped 31 basis points to 3.47 percent, indicating investors' optimism over longer-term money supply in the markets, traders said.
For a fifth week, the central bank did not drain or inject money in its open market operations.
Traders said the monetary authorities, faced with less capital inflows, may have changed strategy to manage money supply by using new tools to offer longer-term liquidity, such as MLF, and depending less on short-term open market operations.
"With the enrichment of regulatory tools, the PBOC appears to have increasingly left the open market operations in cold," said a trader at an Asian bank in Shanghai. "The trend is likely to continue in coming months."
Last week, the central bank confirmed for the first time that it injected massive amounts of money into the markets via MLF in September and October.
The PBOC's tactics have lowered expectations for more aggressive monetary easing, such as a policy rate cut, traders said.
The change in sentiment is reflected in Chinese interest rate swaps. The benchmark five-year IRS had rebounded to 3.32 percent by midday on Friday, rising 18 basis points from last Friday's close.