Shanghai Interbank Rate Lowest Since May Even as PBOC Pulls Cash

  • Liquidity is ample and monetary easing not necessary: Bocom
  • Pressure eases as factory deflation slows for sixth month

Borrowing costs in Shanghai fell to the lowest level since May as funds returned to the banking system following increased demand for quarter-end regulatory needs.

The decline comes even amid signs that the central bank is against maintaining excessive liquidity as it looks to limit volatility in money-market rates. Data released over the weekend showed factory-gate deflation eased for the sixth month in a row, alleviating pressure on the People’s Bank of China for further stimulus, according to Australia & New Zealand Banking Group Ltd.

“There’s ample liquidity in the banking system, as falling money rates indicate funds are returning,” said Chen Ji, a Bank of Communications Co. analyst in Shanghai. “A system-wide monetary easing doesn’t seem to be necessary in the short term.”

The three-month Shanghai Interbank Offered Rate fell one basis point to a seven-week low of 2.93 percent on Monday, as the central bank pulled cash for a seventh day in open-market operations. The PBOC withdrew a net 645 billion yuan ($96 billion) last week, mopping up all the cash it had injected to meet quarter-end demand.

The seven-day repurchase rate, a gauge of interbank funding availability, fell one basis point to 2.28 percent as of 4:33 p.m. in Shanghai. The benchmark has averaged 2.28 percent so far this month, compared with June’s 2.32 percent. Sovereign bonds declined, with the yield on sovereign bonds due May 2026 rising three basis points to 2.83 percent, according to National Interbank Funding Center prices.

— With assistance by Helen Sun

Before it's here, it's on the Bloomberg Terminal.