China's money rates inch up

China's primary money rates edged up this week due to a central bank-led health check on financial institutions and rising cash demand at the end of quarter, while prospects of liquidity level stayed positive, traders said. 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 3.0116 percent on Friday afternoon, nearly 29 basis points higher than the previous week's closing average rate of 2.7260 percent.
Traders said supply and demand were largely balanced with a few signs of liquidity tightness this week. A trader at a Chinese bank said the central bank's assurance during the week also helped improve market confidence.
With increasing fiscal expenditures at the end of the month, total liquidity in the banking system would continue to improve in the coming days after absorbing maturing reverse repos, the People's Bank of China (PBOC) repeatedly said in statements on its website this week.
Separately, traders noticed that wording in the central bank's second-quarter monetary policy committee meeting has changed, a sign that the country's monetary stance might have switched amid escalating trade friction between Beijing and Washington and some slowdown in the country's broad economy.
In the statement, description of managing liquidity level has been changed to "reasonable and ample", compared with "reasonable and stable" in previous official documents. Deng Haiqing, a visiting economics scholar at Renmin University of China, said the change in wording suggested that the monetary policy stance has been "changed rather than fine-tuned".
The PBOC said on Sunday it would cut the amount of cash that some banks must keep in reserves by 50 basis points to accelerate the pace of debt-for-equity swaps and spur lending to smaller firms. The cut in the reserve requirement ratio (RRR) is the central bank's third in 2018, and came amid worsening US-China trade tensions as well as the US Federal Reserve's monetary tightening this year. In open market operations, the central bank drained a net of 370 billion yuan through reverse bond repurchase agreements this week, compared with 140 billion yuan of injection on a net basis a week earlier.