China's primary money rates surged to their highest level in 4-1/2 years on the last trading day of the year, as liquidity remained tight with the central bank refraining from injecting any fresh funds into market for the sixth straight day. Friday marks the last day for most financial institutions to square their books and fulfill regulatory requirements, effectively dampening institutions' willingness to lend to their peers, traders said.
The benchmark 14-day repo, considered one of the best indicators of general liquidity, has been steadily climbing through the week. On Friday, the 14-day repo rate opened at 10.00 percent and surged to a high of 15.00 percent at one point, the highest since late June 2013 when a cash crunch convulsed Chinese and global financial markets.
In afternoon trade, the volume-weighted average rate for the 14-day repo retreated to 5.2517 percent, more than 4 basis points higher than the previous close of 5.2081 percent on Thursday. The volume-weighted average seven-day repo rate was at 3.0879 percent, around 11 basis points higher than the pervious close.
The interbank market will be open over the weekend this year, but most banks still aim to square their books on Friday, said a trader at a Chinese bank in Shanghai. While the PBOC decided against injecting fresh liquidity for the past week, it announced a temporary liquidity facility to let commercial banks have more cash ahead of the Lunar New Year. In 2018, the first day of Lunar New Year is February 16. Some banks will be allowed to lower their reserve requirement ratios by up to 2 percentage points, for 30 days, according to the central bank statement.
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