China's money rates hover near recent lows on good liquidity

SHANGHAI: China's money rates were little changed on Tuesday, remaining near recent lows thanks to good liquidity conditions and increased willingness by market players to lend, making the likelihood of another round of monetary easing increasingly unlikely, traders said.

The People's Bank of China (PBOC) conducted a net drain of 144 billion yuan ($23 billion) from the market on Tuesday, after injecting a moderate 76 billion yuan via bond reverse repurchase agreements this morning.

The reverse repo injection only partly offset the 220 billion yuan that drained from the system as previously issued instruments matured, but traders said there was still enough cash to go around despite the drain.

"Every bank is willing to lend as they see no threat to their cash flows any time soon," said a trader at a major state-owned bank in Beijing.

Traders said that commercial banks' cash balances were buoyed by refunds on payments made to meet mandated reserve and loan-to-deposit ratios recently issued by the central bank. Such refunds are usually issued shortly after the end of the official assessment, and frequently cause money rates to dip temporarily as cash floods back into the system.

"Liquidity conditions have become particularly good after the reserve requirement refunding," said a trader at an Asian bank in Shanghai.

"The PBOC may not need to cut RRR again this year."

The benchmark weighted-average seven-day repo rate inched down to 2.8042 percent from 2.8086 at market close on Monday, when it hit its lowest level since Sept. 4, falling below the 3 percent line that market watchers say signals loose conditions.

The 14-day repo rate fell to 3.2081 percent from 3.2390 percent, although the overnight rate edged up to 2.2179 percent from 2.0520 percent.

The liquidity situation has been improving since Oct. 8, when the market resumed trading after a long holiday. Banks usually hoard cash in the runup to extended holidays to meet customer demand, then release excess into the market when trading resumes.