SHANGHAI: China's money rates were mixed this week as seasonal demand, including calls ahead of a long holiday period, was largely offset after the central bank made a system-wide cut to banks' reserve requirement ratios (RRR) and conducted other cash injections.
A fall in benchmark Chinese interest rate swaps (IRS) after the RRR cut suggests markets are betting that the central bank will cut the official deposit rate again to support economic growth, traders said.
"While the RRR cut had largely been priced in to money rates, it has nevertheless sparked fresh market bets that the central bank will cut official interest rates again," said a trader at a Chinese commercial bank in Shanghai.
The weighted average of the benchmark seven-day repo rate , the barometer of China's short-term liquidity supply, climbed 17 basis points from last Friday's close to 4.34 percent by midday.
But the 14-day rate, another active contract, fell 16 basis points from its Jan. 30 close to 4.78 percent, while the one-day rate dropped 4 basis points to 2.79 percent.
The People's Bank of China (PBOC) said late on Wednesday it was cutting reserve requirements, the amount of cash banks must hold back from lending, to 19.5 percent for big banks effective Feb. 5, a reduction of 50 basis points.
That would free up 600 billion yuan ($96 billion) or more held in reserve at Chinese banks - which could then inject 2-3 trillion yuan into the economy after accounting for the multiplying effect of loans.
The PBOC also injected a net 90 billion yuan via open market operations this week, as part of its efforts to meet seasonal cash demand heading into the long Lunar New Year holidays around mid-February.
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