SHANGHAI, March 11 China's money rates
stabilised on Tuesday after the People's Bank of China (PBOC)
drained 100 billion yuan ($16.29 billion) through 28-day bond
repurchase agreements during open market operations.
The weighted average of the benchmark seven-day repo
stood at 2.26 percent on Tuesday morning after
closing at 2.3017 on Monday. Average rates have not been so low
The overnight repo and the 14-day repo
were also trading in accomodative territory.
"It's still relaxed, extremely relaxed," said a trader at a
Chinese municipal bank in Shanghai.
He predicted conditions would remain easy until upcoming tax
payments come due in April, putting upward pressure on rates.
"Generally speaking, the PBOC intends to maintain current
liquidity conditions due to the slowing economy and mild
inflation pressures," wrote Hao Zhou, economist at ANZ Bank in
He pointed out that credit data released on Monday showed a
decline in shadow banking activity and slowing loan growth,
implying the the central bank can allow liquidity conditions to
ease significantly without aggravating inflation or asset
The PBOC had previously used short-term money rates to
pressure banks and corporations to reduce their participation in
the riskier forms of shadow banking activity, which regulators
feared were evolving into a major source of opaque systemic
As a result China's money markets saw repeated dramatic cash
crunches in June, December and again in January as banks
scrambled for cash.
However, signs of weakening exports, slowing growth and
softening inflation appear to have provoked Beijing to adjust
its cash management strategy and let more cash flow into the
This effort is complemented by a drive to introduce more
downside risk into the currency market. Traders say the central
bank, acting in apparent concert with major state-owned banks,
has dumped yuan into the interbank market in order to push down
the exchange rate, flushing out speculators.
A side effect of this campaign has been increased liquidity.
($1 = 6.1385 Chinese Yuan)
(Additional reporting by Chen Yixin; Editing by Kim Coghill)