SHANGHAI: China's money rates slumped on Tuesday as liquidity improved amid optimism that Ministry of Finance refunds would offset the lack of central bank activity in the interbank market.
The central bank did not inject or drain funds on Tuesday, after refraining from intervention on Thursday, but official comments on its recent open market operations have helped ease worry about possible policy tightening, traders said.
Banks also completed their cash payments to meet bank reserve requirements, easing cash demand.
Banks are required to adjust their reserves at the People's Bank of China (PBOC) on the 5th, 15th and 25th of each month based on the latest changes to their deposits. If deposits increase, they must add to reserves, while they receive refunds if deposits fall.
Traders said banks appeared to be more willing to lend on Tuesday because liquidity was expected to loosen further later in March, a month when the Ministry of Finance typically injects money into the banking system via redistribution of collected taxes and fees.
PBOC Governor Zhou Xiaochuan was quoted by local media as explaining that the central bank's recent operations were in line with typical liquidity inflows into the market after the Lunar New Year, and there were no policy connotations.
The weighted-average seven-day bond repurchase rate tumbled 110 basis points to 3.19 percent near midday from Monday's close of 4.29 percent.
The overnight repo rate dropped to 3.02 percent from Monday's close of 3.29 percent, while the 14-day rate fell to 3.38 percent from 4.31 percent.
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