China's overnight money rate jumps to 4-month high, policy rate in focus

1 week ago 22

China's short-term money rates jumped to four-month highs on Thursday, driven up by rising seasonal cash demand

Topics
China | China economy

Reuters  |  Shanghai 

China's short-term money rates jumped to four-month highs on Thursday, driven up by rising seasonal cash demand, as the market's focus shifts to whether the central bank will trim policy rates to cushion the economic slowdown.

The volume-weighted average of overnight repurchase agreements, or repos, traded in the interbank market rose to 2.2291%, the highest since Sept. 14.

Traders attributed higher borrowing costs to tighter cash conditions against the backdrop of reduced cash supply from big banks in the market as most lenders had to shore up their cash positions ahead of quarterly tax payments in January.

"Cash conditions started to tighten in late trade on Wednesday, with many scrambling for funds," said a trader at a Chinese bank.

Traders expect the People's Bank of China (PBOC) to step up liquidity injection through open market operations in the run-up to the Lunar New Year holiday, from Jan. 31 to Feb. 6 this year, due to higher demand for cash from households and companies.

A state-run newspaper said earlier this month that the PBOC was set to "timely replenish" liquidity shortfalls before the long holiday.

Policy insiders and economists told Reuters that China's central bank was poised to unveil more easing steps to support slowing growth, though it would likely favour injecting more cash into the economy rather than cutting interest rates too aggressively.

But some market analysts and traders still expect a marginal interest rate reduction this month, following a cut to the lending benchmark loan prime rate (LPR) in December.

Li Chao, chief economist at Zheshang Securities said a 5- basis-point cut to the PBOC's seven-day reverse repo rate could happen as early as Friday, followed by reductions to interest rates on 14-day reverse repos, medium-term lending facility (MLF) and LPR by the same margin next week.

"The tiny rate cut is mainly due to the accelerated monetary tightening in other economies, such as by the Federal Reserve, and uncertainty in the domestic inflation trend," Li said in a note.

(Reporting by Winni Zhou and Andrew Galbraith; Editing by Jacqueline Wong)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Read Entire Article