SHANGHAI, March 5 China's average benchmark
seven-day bond repurchase rate climbed to a
two-week high of 3.8104 percent on Wednesday, after the central
bank assertively drained funds from money markets on Tuesday.
Regulators have signalled for a minor relaxation of a
previously tight money policy that produced repeated dramatic
spikes in China's money markets in June, December and January.
The original target of the rate rise was shadow banking and
sloppy lending, but concerns about hot money inflows chasing
high yields, combined with weakening macroeconomic data, appears
to have inspired a change of heart.
The People's Bank of China (PBOC), therefore, held back from
draining significant amounts of funds from money markets in
February, allowing the seven-day repo rate to sink back below 4
percent and stay there.
The weighted average of the seven-day repo rate was last
above 4 percent on Feb. 14.
The PBOC also made public statements reassuring investors
that the current monetary policy was stable and stock investors
shouldn't worry about liquidity issues -- which some traders
took as a signal the bank was going to ease money conditions to
help support a rally in China's equity markets, which have
struggled as resuming IPOs compete with listed companies for
However, that does not mean the PBOC is signalling for a
free-for-all, traders say, and there are questions about how
long the new relaxed regime will last.
"Conditions are still relatively easy. At first we were
really cautious at signs of relaxation, and as rates stayed low,
we slowly grew more optimistic," said a trader at a Chinese
However, other traders said current conditions were likely
only an Indian summer engineered for the currently running
National People's Congress -- after which rates will be allowed
to rise again as soon as next week.
After the weighted average rate of the seven-day repo hit a
low of 2.843 percent on Monday, its lowest rate since May 2013,
the bank moved to soak up cash, draining 85 billion yuan ($13.8
billion) during open market operations on Tuesday.
Traders believe the move was designed to bring rates back
into a stable range above 3 percent. Other commonly traded repo
tenors remained in accomodative territory.
($1 = 6.1430 Chinese yuan)
(Reporting by Pete Sweeney; Editing by Jacqueline Wong)