SHANGHAI: China's money market rates rose on Wednesday, with the seven-day repo rate jumping 84 basis points, as traders said a lingering liquidity squeeze may force the People's Bank of China to refrain from raising banks' required reserve ratios this month.
Instead, the market expects the PBOC to continue to mop up money from the market via its regular open market operations after the central bank drained a net 86 billion yuan ($13 billion) last week, the first weekly drain since early April.
The central bank mopped up 25 billion yuan via 28-day government bond repurchase agreements in its regular open market operations on Tuesday on top of a sale of 5 billion yuan of one-year bills. It will conduct the other operations on Thursday.
It has strengthened its open market operations to drain money in a move that appeared aimed at using its bill sales and repo business to replace monthly rises in bank required reserve ratios since last November, traders said.
"With funding costs at such high levels, another RRR hike is almost ruled out," said a dealer at a major Chinese state-owned bank in Beijing. "But the market is still jittery about how much the PBOC will drain via open market operations this week."
The seven-day repo rate rose to 5.4757 percent by midday from 4.6380 percent at the close on Tuesday, remaining high compared with a level of 3 percent that traders say is an acceptable rate for short-term funding.
The shortest overnight repo rate rose to 4.7615 percent from 4.4907 percent and the one-month repo rate rose to 5.8348 percent from 5.4549 percent.
China's interest rate swaps also stayed at high levels on Wednesday after a jump on Tuesday due to an acute shortage of liquidity, traders said.
The benchmark five-year IRS was unchanged at 4.07 percent while the shortest one-year IRS inched down 1 bp but stayed at a very high level of 3.97 percent.
Copyright Reuters, 2011
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