SHANGHAI: Conditions were tight in China's money markets on Tuesday, as the full impact of a cut in the reserve requirement ratio (RRR) for banks is still several days away and traders harboured doubts about the degree of policy loosening in store this year.
The benchmark seven-day weighted average bond repurchase rate fell 12.79 basis points to 5.2476 percent by midday on Tuesday, still well above its 2012 average of 4.540 percent.
Interest rate swaps were little changed. Benchmark five-year IRS rose 3 bps to 3.2800 at midday. The IRS curve remains inverted, a condition that has persisted with only brief interruptions since August 2011.
The RRR cut announced on Saturday night will not take effect until Friday. Traders expect interbank rates to fall significantly starting then.
In a measure of how tight liquidity remains in advance of the release of funds currently held in reserve at the central bank, the overnight repo rate rose 10.08 bps to 4.9130 by midday.
But prices fell for loans with maturities extending into next week. The rate for 14-day repos fell 11.99 bps to 5.5952 at midday.
In the medium term, however, some traders are doubtful that the latest RRR cut signals that Chinese policymakers are committed to full policy loosening this year.
"People really aren't that optimistic," said a money market trader at a city commercial bank in Shanghai.
The trader cited the National People's Congress (NPC), scheduled for early March, as a short-term motivation behind the RRR cut. Senior policymakers are likely keen to avoid fielding a bevy of complaints about the lack of available finance when local officials and bank executives arrive in Beijing to attend the NPC.
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