SHANGHAI: China's short-term money rates rose slightly on Thursday due to a lingering tightness in liquidity at the end of the month and ahead of a holiday.
The People's Bank of China (PBOC) refrained from conducting bond repurchase agreement business in its regular open market operations on Thursday, resulting in a net cash injection of 64 billion yuan ($10 billion) this week, of which 3 billion yuan was injected on Thursday via maturing PBOC bills.
In another injection, the finance ministry on Thursday sold 60 billion yuan of its six-month deposits to commercial banks.
Traders said liquidity conditions were expected to remain tight up to early May, but were likely to improve in the second week of that month.
"Regulatory injections have helped ease market liquidity conditions, effectively checking another sharp rally in money rates," said a trader with a Chinese brokerage in Shanghai.
The weighted average of the benchmark seven-day repo rate had risen slightly to 3.9856 percent at midday from Wednesday's close of 3.9271 percent, while the 14-day repo rate had climbed to 4.0475 percent from 4.0006 percent.
Banks need cash to demonstrate compliance with mandated loan-to-deposit ratios that are assessed at the end of each month. They also need enough money to meet demand from retail customers withdrawing cash ahead of a public holiday next Monday and Tuesday, traders said.
Right after the holiday, banks will begin to set aside cash to meet reserve requirements for increased deposits at the end of May. Traders said they expect short-term demand to slacken in the second week of the month.
As China's economy has been slowing since the fourth quarter of last year, the market has been expecting the PBOC to ease monetary policy in response. But Beijing has remained wary of premature easing in the face of sustained price inflation.
The central bank cut cash reserve requirement ratios for commercial banks twice in November and February, injecting about 800 billion yuan into the market.
The PBOC also injected cash into the markets in 10 out of the 16 weeks this year, a net injection of 246 billion yuan into the banking system.
But traders said these steps were very mild in terms of monetary easing.
Chinese interest rate swaps were largely unchanged as the market does not believe the PBOC will cut interest rates any time soon.
The benchmark five-year IRS had edged up 1 basis point to 3.38 percent at midday, while the one-year IRS remained unchanged at 3.20 percent.