- Impact blunted by $177 billion of maturing reverse repos
- Next focus is on open-market operations rate, StanChart says
China’s benchmark money-market rate declined the most in more than three weeks after the central bank reduced the amount of deposits that lenders must set aside in reserve.
The move will inject about 685 billion yuan ($105 billion) into the financial system and bolster short-term growth, Bloomberg Intelligence estimated. The monetary authority said on Tuesday that there’s ample liquidity in the financial system and that it didn’t conduct its daily open-market operations because of weak demand from traders. There are 1.16 trillion yuan of reverse-repurchase agreements maturing this week, data compiled by Bloomberg show.
The seven-day repurchase rate, a gauge of interbank funding availability, dropped six basis points, the most since Feb. 6, to 2.28 percent as of 4:30 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. The overnight rate fell four basis points to 1.94 percent.
“We think the next focus is the open-market-operations rate, as it is the strongest candidate for China’s future policy target rate,” said Becky Liu, senior rates strategist at Standard Chartered Plc in Hong Kong. “A cut in the OMO rate would send a strong easing signal.”
The People’s Bank of China injected an unprecedented 1.7 trillion yuan via such operations in the five weeks running up to the Lunar New Year holidays last month. The monetary authority auctioned 230 billion yuan of seven-day repos on Monday, leaving a net injection of 150 billion yuan. The interest rate was kept unchanged at 2.25 percent.
“The PBOC didn’t inject money in open-market operations today, indicating the RRR cut simply replaces the reverse repos,” said Qi Sheng, Beijing-based analyst at Huachuang Securities Co. “Without a RRR cut, the PBOC would have to roll over the huge amount due this week for every week going forward.”
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was unchanged at 2.30 percent, data compiled by Bloomberg show. Government bonds declined, with the yield on notes due January 2026 rising one basis point to 2.88 percent, according to National Interbank Funding Center prices.
— With assistance by Tian Chen, and Helen Sun