SHANGHAI: China's key lending rates fell below 3 percent on Thursday for the first time in nearly a year, while the seven-day repo slumped to a 10-month low, as the central bank indicated it would keep the market amply supplied in the near-term.
The weighted-average seven-day bond repurchase rate was at 2.9450 percent at midday, lower than Wednesday's 3.0978 percent. The rate last fell below 3 percent in January 2011.
The People's Bank of China drained 30 billion yuan from the money markets through 91-day bond repurchase agreements on Thursday. Together with the 30 billion yuan in 28-day repos it conducted on Tuesday, the PBOC has injected a net 3 billion yuan into the market this week.
"The injection shows the central bank has no intention of tightening market funding even though money rates are at a very low level," said a dealer at a Chinese Bank in Shanghai.
"We expect the key rate (seven-day) will hover around 3 percent till month-end."
Dealers said the central bank could use flexible open market operations, especially bond repurchase agreements, as the main tool to control liquidity.
With uncertainties weighing on the domestic economy, the central bank will likely avoid stronger measures such as cutting bank reserve requirements for now.
Interest rate swaps (IRS) also fell on ample liquidity and expectations of looser monetary conditions, but market players were cautious ahead of inflation data on Friday, which could provide clues on when the government may adjust monetary policy, dealers said.
The benchmark five-year IRS fell 5 bps to 3.33 percent and the one-year IRS was down 2 bps at 3.16 percent.
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