China's o/n repo highest since March 2015, busts PBOC corridor ceiling

SHANGHAI (Reuters) - China’s short-term money rates rose for a fifth straight day on Friday, busting above the central bank’s interest rate corridor ceiling, as an insufficient liquidity injection raised speculation that a shift to a tighter policy may be underway.

FILE PHOTO: A man wearing a mask walks past the headquarters of the People's Bank of China, the central bank, in Beijing, China, as the country is hit by an outbreak of the new coronavirus, February 3, 2020. REUTERS/Jason Lee

The volume-weighted average rate of China’s benchmark overnight repo traded in the interbank market surged to 3.3278% at midday, its highest since March 2015, up about 28 basis points from previous close of 3.0487%. Official data showed that transactions of some overnight funds settled at a cost of 10%.

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

The PBOC injected 98 billion yuan ($15.16 billion) on a net basis via open market operations earlier on Friday, snapping three straight days of net fund withdrawal.

It has drained most cash in three weeks by removing a net 470.5 billion yuan from the banking system this week. [CN/MMT]

The fresh fund injection on Friday was insufficient to soothe market concern that the authorities may be moving to a tighter monetary policy stance to cool gains in share prices and property markets, traders said.

Banks also refrained from lending as much cash to their peers on the final trading day of January as financial institutions have to meet certain month-end cash requirements for administrative checks.

Unlike the past few years, the central bank has not been making any high profile liquidity injections into the banking system to meet strong demand for cash heading into the week-long Lunar New Year holiday, which starts on Feb. 11 this year.

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.

Some economists and analysts argued that economic recovery from coronavirus disruption was uneven and was yet to afford a sudden shift, and some senior officials also said the PBOC will not make a sharp U-turn on its policy stance this year.

Signs of liquidity stress spread to offshore market. The CNH Hong Kong Interbank Offered Rate benchmark (CNH HIBOR) rose across the board, with the overnight rate jumping to a more than 3-1/2-year high of 7.07983%, about 331 basis points above the previous fix of 3.76867% a day earlier.

Hong Kong Monetary Authority’s (HKMA) 10 billion yuan quota for intra-day yuan funding has been utilised more than 80% on Friday morning, according to Refintiv data.

Financial News, a publication owned by the central bank, published a report on Friday quoting some analysts as saying the PBOC could fine-tune its policy before the holiday by increasing cash injections via open market operations.

($1 = 6.4647 Chinese yuan)

Reporting by Winni Zhou and Andrew Galbraith; Editing by Shri Navaratnam & Simon Cameron-Moore