China's key money rate hits 5-week low, ignores large cash drain

SHANGHAI: China's main benchmark money rate fell 19 basis points to a five-week low on Thursday, despite a huge net cash drain in open market operations.

The central bank allowed a net 221 billion yuan to drain from money markets this week as previously issued reverse repos matured, the second-largest drain of the year.

 However, both drains occurred in the aftermath of week-long holidays, absorbing excess cash previously injected into the system to tide banks over while markets were closed.

 "This week's drain is a typical central bank re-adjustment of liquidity after the holiday, so it does not have a major impact on the money markets," said a trader at a major Chinese state-owned bank in Beijing.

"But the seven-day repo rate has fallen too much this week, and it will have limited room to fall further in coming weeks."

 The weighted-average seven-day bond repurchase rate dropped to 2.6817 percent in late morning trade, its lowest since Sept. 4 and down from Wednesday's close of 2.8683 percent. It has stayed below the 3 percent line that market watchers say signals loose conditions all this week.

Liquidity has been improving since Oct. 8, when the market resumed trading after a long holiday.

 The People's Bank of China (PBOC) conducted 30 billion yuan ($4.8 billion) in reverse repos on Thursday to help some banks that lacked funds, but with 117 billion yuan worth of reverse repos maturing the same day, the central bank ended up draining a net 87 billion yuan for the day.

Among other tenors, the one-day rate fell to 2.2021 percent from 2.2258 percent but the 14-day repo rate rose to 3.4044 percent from 3.1801 percent.

Traders said there was no impact from China's third-quarter economic figures released on Thursday, as the data was in line with expectations and had been factored into market rates.

China's economy grew 7.4 percent in the July-September quarter from a year earlier, the National Bureau of Statistics said on Thursday, the slowest pace since the first quarter of 2009 as the global financial crisis raged.