SHANGHAI: China's key money rate retreated slightly on Thursday after the central bank conducted its biggest net injection in over two months into the money markets via open market operations, boosting confidence that liquidity will be kept ample.
The People's Bank of China will inject a net 19 billion yuan ($3 billion) into the money markets for the week, after draining 20 billion yuan from the markets through 91-day bond repurchase agreements on Thursday.
That follows a 70 billion yuan drain via 28-day repos it issued on Tuesday, while a total of 109 billion yuan in bills and repos are set to mature this week.
"Recently, the central bank has sent signals that it will use the open market to keep market liquidity at a reasonable level," said a dealer at a Chinese bank in Shanghai. "For now, we are quite confident in conditions in the money market."
The weighted-average seven-day bond repurchase rate was down 2.64 basis points at 3.5057 percent at midday compared with 3.5321 percent at the close on Wednesday, while the overnight repo rate, dipped 3.37 bps to 2.6045 percent.
The 14-day repo rate was little changed, rising to 3.9597 percent from 3.9560 percent.
Dealers also said they had already set aside enough cash to meet recurrent demand for money that emerges regularly at the end of the quarter.
"The quarter-end money situation is better than our expectations, so we expect money rates to fall back soon," the Chinese bank dealer said.
Interest rate swaps showed little change, with short-term one-year IRS falling 1 bps to 3.08 percent on ample market liquidity.