China Money Rates Come Off Highs as PBOC Boosts Cash Injections

  • Benchmark interbank rate rose to highest this month on Friday
  • Central bank to add more cash at end-July: Shenwan economists

China’s benchmark money-rate rate came off this month’s highs, with the central bank boosting its cash injections by the most in five weeks amid concern mounting maturities may trigger a liquidity squeeze.

The People’s Bank of China pumped in a net 220 billion yuan ($32.6 billion) via open-market operations on Monday, the most since June 16. That followed the biggest weekly injection since January, when funding demand spiked ahead of the Lunar New Year holidays. A combined 678.5 billion yuan of reverse-repurchase contracts and Medium-term Lending Facility loans are coming due this week, which will drain cash from the financial system.

The central bank injections come after a policy meeting earlier this month highlighted the importance of maintaining financial stability and reducing risk. The seven-day repurchase rate climbed 16 basis points last week to 2.91 percent, just 14 basis points lower than the cost of six-month loans from the PBOC -- prompting Citic Securities Co. to comment in a note Monday that the monetary authority is using the Medium-term Lending Facility as the benchmark target rate now.

“The PBOC is expected to increase injections toward the end of the month to continue its efforts to maintain market stability,” Shenwan Hongyuan Group Co. economists led by Li Huiyong wrote in a note Monday. “Hence it’s unlikely there will be unexpected volatility in money rates.”

The seven-day repo rate, a measure of interbank funding availability, fell six basis points to 2.85 percent as of 4:47 p.m. in Shanghai, according to weighted average prices. The overnight money rate dropped two basis points to 2.72 percent.

Some 540 billion yuan of reverse-repurchase agreements will come due this week, in addition to 138.5 billion yuan of MLF loans, according to data compiled by Bloomberg. The PBOC granted 360 billion yuan of MLF loans earlier this month, compared with a total of 357.5 billion yuan that mature this month.

The recent rise in money rates may stem from quarterly corporate tax payments that could have been more than expected., Tianfeng Securities Co. analysts wrote in a note last week.

— With assistance by Helen Sun

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