China's money rates steady

China's primary money rates were flat this week despite the central bank skipping its regular open market operations, as a surprise injection of medium-term cash amid a turn by Beijing toward looser fiscal policy kept liquidity ample.
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 2.6242 percent, almost unchanged from the previous week's closing average rate of 2.6241 percent.
The Shanghai Interbank Offered Rate (SHIBOR) for the same tenor fell to 2.6540 percent, or 2.1 basis points lower than the previous week's close of 2.6750 percent.
The one-day or overnight rate stood at 2.2560 percent and the 14-day repo stood at 2.7044 percent.
The People's Bank of China (PBOC) chose to skip open market operations for five consecutive days this week, draining a net 370 billion yuan from money markets.
But surprising the market, the bank lent 502 billion yuan
($73.76 billion) to financial institutions through its one-year medium-term lending facility (MLF) on Monday, bringing the value of outstanding MLF loans to 4.9225 trillion yuan.
While the injection followed expectations that the PBOC would boost commercial banks' liquidity to support smaller private firms, in part by allowing commercial banks to tap MLF loans, its size and timing were not anticipated.
The central bank typically injects liquidity through MLF loans on the day that existing loans are due to mature.
The injection also encouraged a broader shift in policy expectations, with Beijing moving to provide more fiscal support for the country's economy as a growing trade war with the United States threatens to put the brakes on already-slowing growth.
On Monday, China's cabinet vowed to adopt a more proactive fiscal policy, with tax cuts for companies and more local government special bond issuance, without resorting to strong policy stimulus.
"Liquidity in the interbank market is already very good. The MLF injection is intended to support credit rather than to support the interbank market," said David Qu, China markets economist at ANZ in Shanghai.
He characterized the central bank's thinking as "structural," using different instruments to fine-tune both short- and long-term liquidity levels.
"It's too early to say that China will engage in broad easing," he added. "That the PBOC is implementing structural policy at this stage just shows that it doesn't want, or is relatively cautious, about going toward broad easing."
The MLF injection helped to drive down longer-term rates. The yield on one-year negotiable certificates of deposit (NCDs), a debt instrument traded on the interbank market, on Tuesday fell to 3.64 percent, its lowest since December 30, 2016 and a drop of 31 basis points from the end of last week. On Thursday, the yield on three-month NCDs fell 39 basis points to 3.01 percent, its lowest level since November 2016.