SHANGHAI: China's short-term borrowing rates slumped on Monday, with the benchmark seven-day repo rate falling 48 basis points, as market liquidity conditions improved, with maturing central bank bills and repos injecting cash into the money market, traders said.
A total of 60 billion yuan in bills previously issued by the People's Bank of China matured on Sunday, while 66 billion yuan in PBOC bond repurchase agreements will mature on Tuesday.
The PBOC also signaled that it will skip new bill sales again this week. Traders on Monday said PBOC asked banks only about weekly repo demand during the central bank's regular consultations with primary dealers.
The PBOC has suspended bill issuance since last December, as it appears to be shifting monetary policy to a neutral stance from the tight stance it held for most of last year, a move that came after growth of the world's second-largest economy slowed amid the eurozone debt crisis.
Cash flows in the Shanghai-based money market also improved after banks late last week completed payments of additional reserve deposits with the PBOC in order to meet reserve ratio requirements, following an increase in total deposits in the first quarter.
"Sentiment towards near-term liquidity conditions has improved, pushing more banks to be willing to lend money," said a trader at a major Chinese state-owned bank in Shanghai.
The benchmark weighted-average seven-day bond repurchase rate fell to 3.7532 percent from 4.2296 percent at Friday's close.
The overnight repo rate dropped to 2.9368 percent from 3.2532 percent, and the 14-day rate fell to 3.9856 percent from 4.3069 percent.
CPI HIGHER THAN EXPECTED
Most Chinese interest rate swaps rose at mid-session, with higher-than-expected consumer inflation announced on Monday further dampening the prospects for a rate cut in the near term.
Benchmark five-year IRS rose 3 bps to 3.38 percent, and one-year IRS was up 5 bps to 3.17 percent.
China's annual inflation rebounded sharply in March to 3.6 percent, driven by rising food prices, surprising investors who had bet on cooling price pressures to give Beijing room to ease monetary policy.
Last week, China's IRS largely moved sideways while short-term borrowing rates surged.
Chinese banks usually try to attract more deposits at the end of each quarter to window dress their quarterly statements.
While banks must adjust their reserve deposits based on their current deposit totals on the 5th, 15th and 25th of each month, such window dressing means they are typically forced to increase their reserve deposits at the PBOC on the first 5th after the end of a quarter.