China's primary money rates fell this week after the central bank resumed liquidity injections through its regular open market operations, following a long hiatus, and as it introduced a tool for targeted lending with lower interest. On Monday, the People's Bank of China (PBOC) injected 160 billion yuan ($23.2 billion) through reverse bond repurchase agreements, the first such operation after an unprecedented 36-day pause.
It then made four more injections, adding 600 billion yuan into money markets for the week through seven- and 14-day reverse repos, with rates unchanged. This was the largest weekly net injection since November 2017. The injections gave financial institutions cash to bridge the year-end, when corporate demand for funds increases due to tax payments.
"Liquidity levels have been good all along," said a trader at an Asian bank in Shanghai. On Friday afternoon, 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 2.5857 percent. That was 10.65 basis points lower than the previous week's closing average rate of 2.6922 percent.
The Shanghai Interbank Offered Rate (SHIBOR) for the same tenor fell to 2.6490 percent, 3.4 basis points below the previous week's close of 2.6830 percent. The one-day or overnight rate stood at 2.4697 percent and the 14-day repo at 3.7711 percent. While leaving reverse repo rates unchanged, the PBOC sought to reduce funding costs for smaller firms with a new lending tool, the targeted medium-term lending facility (TMLF), in what some analysts said amounted to a targeted rate cut.
TMLF loans will carry one-year interest rates of 3.15 percent, 15 basis points lower than those on the existing one-year medium-term lending facility (MLF). Banks receiving TMLF loans will also be allowed to roll them over twice. MLF loans cannot be rolled over.