Chinese short-term money market rates eased slightly on Friday after jumping the previous day as the central bank's most recent reserve requirement ratio hike went into effect, though traders said rates might remain elevated going forward.
Thursday's reserve ratio increase drained approximately 360 billion yuan ($55.2 billion) from the financial system, while the People's Bank of China (PBOC) also injected a net 94 billion yuan in its open market operations this week, its largest weekly injection since the end of February.
"Today, liquidity is all right. Rates have come down a little bit after yesterday, though we think in the near term, liquidity won't be as loose as before the most recent tightening step," said a trader at a Chinese bank in Shanghai. Traders said the move showed the central bank was being cautious in its efforts to remove liquidity from the money market, unlike at the end of 2010 when surprise tightenings drove short-term money market rates to record highs. China's benchmark money market rate, the weighted average seven-day bond repurchase rate, fell almost 50 basis points to 3.4656 percent at midday on Friday from 3.9548 percent at Thursday's close.
The shortest overnight repo rate eased 53 basis points to 3.0410 percent at midday on Friday, after jumping 179 points on Thursday. The benchmark five-year IRS contract rose three basis points to 4.02 percent at midday from 3.90 at Thursday's close, while the 10-year tenor rose eight basis points to 4.18 percent. One-year IRS rose 17 basis points to 3.37 percent.
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