China's money rates rise

China's primary money rates crept up this week as the central bank ensured ample liquidity amid month-end demand for cash, maintaining stability ahead of key political meetings, but traders and analysts pointed to looming risks that could push rates higher. 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 2.9150 percent on Friday afternoon, 5.6 basis points higher than the previous week's closing average rate.
The the Shanghai Interbank Offered Rate (SHIBOR) for same tenor rose to 2.8970 percent Friday, up 1.6 basis points from the previous week's closing rate. The one-day or overnight rate stood at 2.7682 percent and the 14-day repo stood at 3.7145 percent.
The People's Bank of China (PBOC) injected a net 120 billion yuan into the money market this week, on top of a net injection of 580 billion yuan a week earlier. However, market watchers said that while money market liquidity is ample at the moment, the central bank's overall tightening bias remains.
Traders also pointed to expected high demand for cash at the end of the first quarter as banks prepare for the PBOC's quarterly macro-prudential assessment (MPA). "Even if stability is being maintained, the relaxing of liquidity also has limits and there is limited room for rates to continue to fall," Huachuang Securities analysts said in a note.
"Naturally, because of the 'two sessions' there will not be any clear tightening in the near term, and rates are unlikely to rise much," they added, referring to the annual plenary sessions of the National People's Congress and the National Committee of the Chinese People's Political Consultative Conference, which begin on Monday. Chinese authorities have traditionally sought to avoid market volatility around major political events.
But a possible rate hike by the US Federal Reserve, which could prompt the PBOC to raise open market rates more than expected, more restrictive regulation, the formal introduction of rules governing the asset management industry, a squeeze on liquidity and quarter-end factors could put pressure on the market, the analysts said.