China's primary money rates ended the week higher despite net liquidity injections and a surprise cut in banks' reserve requirements by the country's central bank, as demand for cash remained strong. 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 2.8851 percent around midday on Friday.
That was up 18.9 basis points from the previous week's closing average rate of 2.6966 percent. The Shanghai Interbank Offered Rate (SHIBOR) for the same tenor rose to 2.8930 percent, up 9.5 basis points from the previous week's close.
The one-day or overnight rate stood at 2.7838 percent and the 14-day repo stood at 4.8299 percent. On Tuesday, the People's Bank of China (PBOC) unexpectedly announced it would cut requirements for the amount of cash banks hold as reserves. Reserve requirement ratios (RRR) - currently 17 percent for large institutions and 15 percent for smaller ones - will be cut by 100 basis points on April 25.
The move jolted markets, prompting a jump in benchmark Chinese Treasury futures. On Wednesday, the price of 10-year Chinese Treasury futures for June delivery, the most traded contract, rose as high as 95.775, its highest since September.
On Friday, the same contract was trading lower at 95.135. Analysts at Huachuang Securities said in a note that despite a large net injection on Thursday, demand for cash for tax payments and government bond issuance meant that market liquidity remained tight.
"The boost to market sentiment from the RRR cut has seen some weakening. Treasury futures started (the week) low and are continuing low." For the week, the PBOC injected 470 billion yuan through open market operations. It was the first time since mid-March that the central bank had made a net injection of funds. On Monday, the central bank raised interest rates on 14-day reverse bond repurchase agreements by 5 basis points, matching a hike in the 7-day tenor in March.
In addition, the central bank lent 367.5 billion yuan to financial institutions on Tuesday through one-year medium-term lending facility (MLF) loans. The PBOC also raised the interest rate on one-year MLF loans by 5 basis points.
Analysts said that this week's rate rises had little market effect, as they had been priced in following the March hike. The PBOC raised the seven-day rate in March, following the US Federal Reserve Bank's March 21 move, seen by markets as a symbolic reminder that Beijing is keeping an eye on global market developments.
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