SHANGHAI: China's money rates extended their fall on Monday, with dealers reporting that banks are eager to lend amid expectations that the central bank will use reverse repos to maintain liquidity.
The PBOC surprised the market over the weekend by issuing five-day reverse bond repurchase agreements on Saturday.
The central bank normally auctions seven-day repos on Tuesdays and Thursdays. The unusual five-day tenor allows the instrument to mature this Thursday, the same day as if a seven-day reverse repo had been auctioned on Thursday last week, when the market was closed for the New Year holiday.
The PBOC's auction was aimed at relieving the traditional year-end liquidity squeeze caused by elevated corporate and household cash demand around the New Year holiday.
"No matter which tenor it chooses, the central bank has shown its intention to continue reverse repo auctions, so the money situation should remain good," said a dealer at a Chinese commercial bank in Shanghai.
The benchmark weighted-average seven-day bond repurchase rate slumped 33 basis points to 3.18 percent, its lowest level since Dec. 24 and down from 3.50 percent at Friday's close.
The 14-day repo rate fell to 3.27 percent from 3.37 percent, its lowest point since Dec. 17, while the one-day repo rate dipped 5 bps to 2.14 percent.
In the rates market, interest rate swaps (IRS) fell on Monday, with the one-year IRS falling to 3.36 percent, from Friday's close of 3.40 percent, while the benchmark five-year IRS dipped to 3.73 percent from 3.77 percent.
Center>Copyright Reuters, 2013