China's money rates ease

07 May, 2018

China's primary money rates slipped this week as cash demand eased after the month-end peak, prompting the central bank to drain funds from the market for a second straight week. Markets are focused on trade talks between China and the United States being held in Beijing, although concrete details are not likely to be imminently announced. US Treasury Secretary Steven Mnuchin said on Friday that the US trade delegation has been having very good conversations.
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 2.6906 percent on Friday afternoon, about 34 basis points lower than the previous week's closing average rate of 3.0269 percent.
Traders said cash conditions were balanced to slightly loose this week, after the month-end peak demand for funds. In open market operations, the People's Bank of China (PBOC) drained a net 110 billion yuan ($17.32 billion) from banking system for the week, compared with 270 billion yuan drain on a net basis a week earlier.
The PBOC said on Wednesday that reduced requirements for bank reserves - which came into effect on April 25 - released a total of almost 1.3 trillion yuan, out of which 900 billion yuan had been used by the banks to repay their respective outstanding medium-term lending facility (MLF) loans.
It added that 156 billion yuan in outstanding MLF loans will be due this month - that is down from an original maturity of 392.5 billion yuan, as calculated by Reuters based on official data. The difference suggested that only part of the maturing MLFs for May were repaid.
The central bank has yet to respond to Reuters query about details of its repayment for outstanding MLF loans. Some market watchers said they do not expect cuts in the reserve requirement ratio (RRR), targeted to help banks repay their outstanding MLF loans, as a one-off move. Ming Ming, an analyst at CITIC Securities, said he expects RRR cuts to become "normal", predicting that the PBOC will make another two to three reductions this year and the next.

Read Comments