China money rates fall

China's primary money rates fell in the first week after the long National Day holidays as authorities carefully managed liquidity levels ahead of the opening of a pivotal Communist Party congress. Helping rates fall was the central bank's announcement - just before the one-week holiday - that it would cut the amount of cash reserves that some banks must hold.
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 2.8219 percent on Friday afternoon. That was nearly 17 basis points lower than the closing average rate on September 29, the last trading day before China's markets closed for the holidays.
The Shanghai Interbank Offered Rate (SHIBOR) for the same tenor fell to 2.8516 percent, 11 basis points below the September 29 close. The one-day or overnight rate stood at 2.5587 percent and the 14-day repo was at 3.7501 percent. On September 30, the People's Bank of China (PBOC) said it would cut the reserve requirement ratio (RRR) for banks that meet certain requirements for lending to small businesses and the agricultural sector.
The cut of at least 50 basis points, which analysts say will affect most banks, will not go into effect until next year, but is expected to free up hundreds of billions of yuan in liquidity. State media reported an unnamed central bank official as saying that the planned cut would not alter policymakers' resolve to lower financial risk and bank leverage ratios.
The RRR cut announcement and continued emphasis on lowering financial risk comes ahead of the party congress, opening on October 18, at which stability is expected to be a central theme. However, some traders questioned the link between market liquidity and the once-in-five-years meeting.
"Liquidity conditions are very relaxed, but I don't think it has anything to do with the 19th Party Congress. They are typically loose after the end of the quarter," said a trader at a state-owned bank in Shanghai. "Looking ahead to next week, there is no clear market direction before the release of September monetary data."
Liquidity received a boost on Friday after the central bank injected 498 billion yuan ($75.69 billion) into the financial system through one-year medium-term lending facility (MLF) loans. The move was expected after the PBOC polled banks on their demand for MLF loans on Monday.
The MLF injection more than offset MLF loans maturing this week, and came alongside a net weekly drain of 240 billion yuan through open market operations. The central bank's "attitude of protecting the basic stability of liquidity conditions remains unchanged," Citic Securities analysts wrote in a note on Friday.