SHANGHAI: China's money market rates continued to climb Thursday as institutions held cash at the end of the quarter and the central bank conducted its largest net weekly drain so far this year, but liquidity remained ample ahead of large numbers of bills expected to mature in April.
The People's Bank of China drained a net 153 billion yuan ($23.3 billion) from the market this week, the fourth straight week of net drains.
Banks also held funds at the quarter- and month-end to cover cash needs.
"The 7-day repo is higher today because of month-end and quarter-end liquidity demands, but overall liquidity is still relatively loose right now," said a trader at a state-owned bank in Beijing.
"April will be a rather sensitive period because of all of the bills maturing," said the trader, with the central bank likely to implement tightening policies in the face of more bills maturing in April than in May or June.
The central bank will likely increase its use of 28-day repos in April to drain liquidity as bills mature, traders and analysts said.
China's benchmark money market rate, the weighted average seven-day bond repurchase rate , rose 19 basis points to 2.8241 percent at midday from 2.6352 at Wednesday's close, while the longest traded three-month repo rate slipped to 3.6800 percent from 3.6819 percent.
The 7-day repo was down over 2 percentage points from the end of the fourth quarter of 2010, when it ended at 5.1712 percent as banks held cash for settlement purposes and the PBOC raised banks' required reserve ratios to drain liquidity from the market, catching banks off guard.
The central bank has since resumed using open market operations in addition to reserve ratio hikes to mop up liquidity.
On Thursday, the PBOC kept the yield of its three-month bill auction in its regular open market operations unchanged at 2.7944 percent, indicating the PBOC may prefer to use repos than interest rate hikes to control liquidity in April.
Chinese interest rate swaps were down slightly on Thursday, with the benchmark onshore five-year IRS down 9 basis points at 3.97 percent by midday, while the offshore five-year non-deliverable IRS fell 5 basis points.
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