- Central bank is less likely to use RRR cuts, analyst says
- Tax bills, maturing medium-term loans seen tightening market
China’s benchmark money-market rate climbed the most since June, reflecting tight cash conditions, even as the central bank injected the most funds in almost three months.
The seven-day repurchase rate jumped 16 basis points to 2.48 percent at Friday’s close. More than 400 billion yuan ($62 billion) in corporate taxes deposited with commercial lenders will move out of the banking system this month, according to Huachuang Securities Co. estimates. The People’s Bank of China made less medium-term loans than those that came due in April.
The PBOC this week pumped in 680 billion yuan through reverse repo auctions, shy of a record 690 billion yuan it injected in January, when demand for cash spiked before the Chinese New Year holidays. The operations signal a preference for short-term liquidity injections over a cut to lenders’ reserve requirement ratios, which would have a system-wide effect. About 870 billion yuan of reverse repos are maturing next week.
“Given the large amount of reverse repos and tax payments that will be due next week, some moderate volatility in liquidity may be unavoidable,” said Li Zhiqiang, an analyst at China Minsheng Banking Corp. “As aggregate financing surged, the central bank is less likely to cut the RRR, because once the money is released, it’s difficult to pull it back.”
China’s aggregate financing, a broad measure of credit, surged in March to 2.34 trillion yuan, according to central bank data this month, surpassing all estimates in a Bloomberg survey.
The central bank drained a net 205 billion yuan in the previous two weeks through its open-market operations, data compiled by Bloomberg show. It made 448 billion yuan of loans this month via its Medium-term Lending Facility, compared with 551 billion yuan of such contracts that matured.
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, has risen 15 basis points this week, the biggest weekly increase in 13 months. It added 7 basis point to 2.56 percent as of 5:24 p.m. in Shanghai, data compiled by Bloomberg show.
— With assistance by Helen Sun