China's short-term money rates rise for fourth day, approaching interest rate ceiling

SHANGHAI (Reuters) - China’s short-term money rates climbed for a fourth straight day on Thursday, with some key tenors approaching the higher end of the interest rate corridor, as tight cash conditions persisted and market worries over a switch in authorities’ policy stance mounted.

FILE PHOTO: A woman walks past the headquarters of the People's Bank of China (PBOC), the central bank, in Beijing, China September 28, 2018. REUTERS/Jason Lee

Investors are getting increasingly worried that policymakers may be starting to shift to a tighter stance to cool gains in share prices and property markets, as the People’s Bank of China (PBOC) continued net draining cash from the financial system.

The volume-weighted average rate of China’s benchmark overnight repo traded in the interbank market surged to 3.0435% as of 0657 GMT, up about 4 basis points from previous close of 3.004%, and not far away from the ceiling of the PBOC’s interest rate corridor.

The interest rate for overnight tenor of standing lending facility (SLF), which serves as the ceiling of the PBOC’s interest rate corridor, now stands at 3.05%.

“Unlike previous rounds of cash crunch, it’s really hard to tell when the conditions will start to loosen up this time,” said a trader at a foreign bank.

In contrast to the past few years, the central bank has not been making net liquidity injections into the banking system to meet strong demand for cash heading into the long Lunar New Year holiday.

The PBOC injected 100 billion yuan ($15.43 billion) via open market operations earlier in the day, but with 250 billion yuan due to expire, it effectively withdrew 150 billion yuan on a net basis. It has drained a net 568.5 billion yuan so far this week. [CN/MMT]

PBOC adviser Ma Jun said this week that risks of asset bubbles will remain if China doesn’t make appropriate shifts in its monetary policy stance amid recent fast-growing leverage.

China’s major stock indexes slumped on Thursday, falling nearly 2% and 3% respectively on the day. [.SS]

Fourteen-day repo traded in the interbank market, which could help financial institutions tide over the Lunar New Year holiday, hit 4.5%, the loftiest since Dec. 28, 2018. It closed at 3.5% a day earlier.

Signs of liquidity tensions were also seen in exchange markets. The overnight repo traded on the Shanghai stock exchange surged to a high of 6.55% on Thursday afternoon, up 259.5 basis points from the previous close of 3.955%, and was the highest since Dec.2, 2020.

In Hong Kong, the CNH Hong Kong Interbank Offered Rate benchmark (CNH HIBOR) for overnight tenor rose to 3.76867%, the highest since Dec. 31, 2020.

($1 = 6.4795 Chinese yuan)

Reporting by Winni Zhou and Andrew Galbraith; Editing by Ana Nicolaci da Costa