China's money rates steady

China's money rates were stable in the Lunar New Year holiday-shortened week, as liquidity conditions loosened following a generous cash injection by the central bank. The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity, was 2.8406 percent on Friday afternoon, around 1 basis point higher than the previous week's closing average rate of 2.8279 percent on February 14, the last trading day before the week-long holiday.
Financial markets resumed trading on Thursday after China's biggest holiday of the year, but many market participants were still on holiday, traders said. Few signs of liquidity stress were seen in the money market this week, thanks largely to liquidity support by the central bank, and the funds would allow financial institutions to smoothly head into the month-end, traders said.
The People's Bank of China (PBOC) resumed fund injection through its open market operations after the long holiday following a 16-trading-day hiatus of skipping reverse repos. The PBOC injected a total of 580 billion yuan ($91.47 billion) on a net basis on Thursday and Friday to keep liquidity ample in the financial markets post-holiday.
The reverse repos conducted on both days were through 7-day tenor, and longer tenors including 28-day and 63-day. The PBOC said in a statement on its website that the cash injection was to counter factors from tax payments and reserve payments at financial institutions. No reverse repos are set to mature this week. A batch of one-year, medium-term lending facility (MLF) loans worth 243.5 billion yuan which expired on February 15, was settled on Thursday.
The central bank injected 393 billion yuan into the financial system via one-year MLF on February 12. Economists at Nomura said in a note on Thursday that the resumption of open market operations was to "send a signal of its bias to keep liquidity broadly stable". And the longer tenor also served to "limit future money market volatility".
Ming Ming, head of fixed income research at CITIC Securities, said the large cash injection was also aimed at keeping liquidity stable during China's annual "two sessions" in early March. The "two sessions" refer to the annual plenary sessions of the National People's Congress and the National Committee of the Chinese People's Political Consultative Conference.