China money rates fall, yuan flat

China's primary money rates fell on Friday, but remained elevated, after the central bank provided banks with liquidity support, to help avert a cash crunch before the Lunar New Year. The People's Bank of China said in a statement it would provide liquidity support for some major commercial banks for 28 days, and the funding cost would be about the same as the open market operations rate over the same tenor.
Earlier on Friday, Reuters had reported that the PBOC temporarily cut the amount of money the five biggest commercial banks must hold as reserves by a full percentage point to relieve pressure in the financial system, citing three sources with direct knowledge of the matter.
The PBOC didn't specify any requirement for collateral for the liquidity support, nor did it state any change to reserve requirements.
But the market believed the support - via the temporary cut in reserve requirement ratio for targeted banks - added around 600 billion yuan ($87.3 billion) in liquidity.
Short-term funding costs had bolted to their highest in nearly 10 years on Wednesday, on fears that liquidity was sharply tightening, sparking volatility in the yuan.
The volume-weighted average rate of the seven-day repo traded in the interbank market closed at 2.6512 percent, over 10 basis points lower than Wednesday's high.
But it was still around 32 bps higher than the previous week's close, suggesting conditions remain tight.
Spot yuan opened at 6.8660 per dollar and was changing hands at 6.8752 at 0830 GMT, flat from the previous late session close and 0.09 percent firmer than the midpoint.
The onshore overnight implied deposit rate for yuan closed at 1.574 percent, after surging as high as 22.099 percent at one point on Thursday - the highest since data became available in April 2007.
The unexpected spike in funding costs has forced some forex traders to bail out of short-yuan, long-dollar positions.
The offshore yuan was 0.42 percent firmer than the onshore spot at 6.8465 per dollar as of 0830 GMT.
China's money and forex markets largely ignored data which showed the economy grew by a slightly faster than expected 6.8 percent in the fourth quarter, giving it solid momentum heading into what is expected to be a turbulent 2017. But they also said economic fundamentals would decide the yuan's trend in the long run.