SHANGHAI, Nov 23 (Reuters) - China's key 7-day money rate
fell to its lowest level in over a month, shrugging off the
central bank's slight drain of funds through open market
operations, as traders said fiscal deposits entering the system
were pumping in significant liquidity.
The benchmark weighted-average seven-day bond repurchase
rate dropped 39.50 basis points to 2.8375 percent
from 3.2325 percent at the close on Thursday, marking its lowest
level since Oct 22.
Though the central bank drained a net 24 billion yuan ($3.85
billion) from the banking system for the week through open
market operations, some traders pointed to large fiscal deposits
keeping money supply loose.
A Reuters analysis shows that the Ministry of Finance is
likely to draw on deposits of government revenues to pump a
record high 1.6 trillion yuan into the system in the last two
months of this year.
'Fiscal deposits have become a major factor to influence the
central bank's monetary policy as well as money markets,' said a
senior trader at a Chinese state-owned bank in Beijing.
Plentiful money supply has meant that since the start of
November, borrowing rates have generally held at a low level,
within a narrow trading range between 3.000 and 3.300 percent.
'There is little demand for borrowing. Banks and
institutions have enough funds, so the rates stay low and
stable,' said a trader at a large state-owned bank in Beijing.
The trader added that holding the official rate steady on
reverse repos issued by the central bank - which the spot rate
tends to follow closely - could also help restrain rates.
The 14-day repo rate climbed slightly to
3.5209 percent from 3.5008 percent, and the one-day repo rate edged down to 2.2616 percent from 2.3211 percent.
Longer-term tenors remained tighter as traders pointed to an
annual spike in demand at the end of the year. The 28-day rate did edge down slightly to 4.000 from 4.0017, but
held above its 28-day moving average.
Traders added that rate movements still depended on what the
central bank did in its twice-weekly open market operations.
'It is hard to say if there will be any increase in
volatility, it really depends on open market operations. But I
wouldn't expect sharp moves in the coming days,' said a trader
at Chinese commercial bank in Beijing.
Current Prev close Change
7-day repo 2.8375 3.2325 - 39.50
7-day SHIBOR 2.8467 3.2183 - 37.16
Note: Repo rate is weighted average.
To see stories on China's debt issue
For prices for central bank bills, treasury bonds and
sovereign bonds, please click,
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($1 = 6.2289 Chinese yuan)
(Reporting by Chen Yixin and Shanghai Newsroom; Editing by Pete
Sweeney and Eric Meijer)
Keywords: MARKETS CHINA BONDS/
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