China money rates hit 21-month high on holiday demand, policy tightening worries By Reuters

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© Reuters. Headquarters of the PBOC, the central financial institution, is pictured in Beijing

SHANGHAI (Reuters) – China’s short-term money rates prolonged rallies to over 21-month highs on Wednesday as buyers frightened that policymakers could also be beginning to shift to a tighter stance to chill positive aspects in share costs and property markets.

Unlike the previous few years, the central financial institution has not been making web liquidity injections into the banking system to fulfill robust demand for money heading into the lengthy Lunar New Year holiday. In truth, it has been draining funds, catching merchants unexpectedly.

The holiday begins on Feb. 11 this 12 months.

On Wednesday, the volume-weighted common charge of China’s benchmark in a single day repurchase agreements, or repo, traded within the interbank market climbed to 2.976% by late morning, up 20.14 foundation factors on the day and the very best degree since April 17, 2019.

The seven-day repo jumped to six.0%, it highest since June 27, 2018.

China’s main inventory indexes had surged greater than 4% this month earlier than pulling again in the previous few days.

“Cash conditions are very tight today,” mentioned a dealer at a international financial institution.

“Investors have given up on hopes for high-profile liquidity support before Lunar New Year.”

The People’s Bank of China (PBOC) injected 180 billion yuan ($27.86 billion) by way of open market operations earlier within the session, in distinction to a minimal every day 2 billon yuan in earlier classes, however nonetheless withdrew 100 billion yuan on a web foundation as 280 billion yuan was set to run out.

The PBOC mentioned the injection was meant to “keep banking system liquidity reasonably ample” as fiscal expenditure elevated considerably in the direction of the month-end. [CN/MMT]

A second dealer at a Chinese financial institution mentioned the PBOC’s strikes steered regulators had been eager to cut back leverage within the monetary markets as many buyers had guess on comparatively free financial circumstances earlier than the holiday.

PBOC adviser Ma Jun mentioned this week that dangers of asset bubbles will stay if China does not make applicable shifts in its financial policy stance amid current fast-growing leverage.

“It’s the precursor that China’s central bank is starting to normalise its monetary policy,” mentioned Marco Sun, chief monetary market analyst at MUFG Bank.

Other economists additionally warned that the central financial institution would step by step shift its policy stance this 12 months after huge emergency measures to cushion the shock from the coronavirus pandemic in 2020.

“Monetary policy in 2021 will be a gradual normalisation contingent on COVID-19,” mentioned Lu Ting, chief China economist at Nomura.

“With the reimposition of lockdowns and travel bans due to the most recent wave of the COVID-19, we think the PBOC will slow its normalisation at the margin.”

However, the state-run Securities Times in a front-page commentary urged buyers to not over-exaggerate the influence of the central financial institution’s short-term liquidity operations on inventory and bond markets.

It anticipated the PBOC to renew 14-day reverse repo and conduct medium-term lending facility (MLF) operations to extend liquidity and push down funding prices to extra affordable ranges.

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