October 30, 2012 / 4:05 AM / 7 years ago

China money rates fall after record PBOC cash injection

* PBOC injects 395 bln yuan, a single-day record
    * Move signals continued use of repos to adjust liquidity
    * Major cash flows into market expected in Nov, Dec
    * PBOC need not cut RRR until late Dec - traders

    By Lu Jianxin and Gabriel Wildau
    SHANGHAI, Oct 30 (Reuters) - China's short-term lending
rates tumbled on Tuesday after the central bank injected a
single-day record amount of cash into the banking system in its
regular open market operations, helping ease a squeeze caused by
corporate tax payments.
    The weighted average seven-day bond repurchase rate
 lost 105 basis points to 3.2684 percent by midday
from a five-week high of 4.3169 percent at the close on Monday.
    The 14-day repo rate fell to 4.7677 percent
from 4.7939 percent, and the overnight one-day repo rate
 plunged to 3.0782 percent from 4.4900 percent.
    The People's Bank of China (PBOC) injected 395 billion yuan
($63 billion) into the banking system through seven- and 28-day
reverse bond repurchase agreements on Tuesday. 
    As there will be a net drain of 189 billion yuan from
maturing bills and reverse reports, Tuesday's record injection
means the PBOC has already pumped a net 206 billion yuan into
the system this week. 
    The central bank will conduct another regular open market
operations on Thursday. It conducted a net drain of 70 billion
yuan from the banking system last week.
    "Huge reverse repo business implies that the PBOC will
continue to rely on open market operations to adjust short-term
liquidity," said a trader at an Asian bank in Shanghai.
    "With large amounts of money expected to flow into the
market in the next two months, the PBOC does not need to ease
monetary policy by a cut in banks' required reserve ratios (RRR)
at least until late December."
    Chinese firms are required to pay their third-quarter income
tax by Oct. 31, and companies have mostly made their payments.
Liquidity conditions are expected to improve in early November,
traders said.
    Liquidity will remain loose for most parts of November and
December partly because the Ministry of Finance usually injects
1 to 2 trillion yuan ($160 to $320 billion) into the banking
system over these two months to refund a portion of corporate
income taxes pre-paid earlier in the year.
    As China's yuan has hit repeated record highs
this month, traders suspect that the PBOC may have intervened in
trading to support the yuan's value ahead of the U.S. elections.
The central band may thus automatically inject yuan liquidity
into the system, which will boost the supply of long-term money.
                                 Current  Prev close  Change
                                       (pct)           (bps)  
7-day repo         3.2684     4.3169    -104.85   
7-day SHIBOR           3.2361     4.1958    - 95.97
 Note: Repo rate is weighted average.
($1 = 6.2459 Chinese yuan)

 (Editing by Richard Borsuk)
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