China's primary money rates edged up slightly this week, but liquidity remained "very loose" despite the central bank draining cash, 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 2.6469 percent on Friday afternoon.
It was about 20 basis points higher than the previous week's closing average rate of 2.4458 percent, which was below the price the central bank charges bigger lenders in the primary market. The 7-day reverse repo rate in the primary market was 2.55 percent.
Traders said cash conditions had been quite loose since the People's Bank of China announced the reverse requirement ratio (RRR) cut in late June and it came into effect on July 5, freeing up about 700 billion yuan ($105.02 billion) in liquidity. High cash demand from the end of the quarter had also eased.
The central bank has drained a total of 960 billion yuan on a net basis through open market operations over the last three weeks, including a net 90 billion yuan withdrawal this week.
As of Friday, outstanding reverse repos had fallen to 40 billion yuan, all set to expire next week, leaving "the PBOC with much more flexibility in conducting open market operations as tax payments will kick in soon," said a trader at a Chinese bank in Shanghai.
The PBOC said in a statement on Friday that it had lent 188.5 billion yuan to financial institutions via its one-year medium-term lending facility (MLF) with rates unchanged. The fresh injection of funds via the MLF effectively rolled over the same amount in such loans maturing on the same day.
Looser cash conditions came after the central bank changed the level at which it was managing liquidity to "reasonable and ample" from the "reasonable and stable" seen in previous official documents. Many market analysts interpreted it as a sign that more easing is likely over the rest of the year.
Analysts polled by Reuters expect the PBOC to cut the reserve requirement by another 100 basis points to 14.50 percent in the fourth quarter from the current 15.50 percent. The RRR is likely to be cut further in 2019, ending the year at 13.75 percent from the previously-expected 16.00 percent at end-2019, the poll found.