SHANGHAI- Liquidity conditions in China’s interbank money markets showed signs of stress on Tuesday as seasonal cash demand kicked in, while the central bank’s move to lower the amount of cash banks must set aside as reserves has yet to come into effect.
Short-term primary money rates rose across the board in morning deals, with volume-weighted average price of overnight repo traded in the interbank market hitting 2.4505 percent, the highest since February 2021.
The volume-weighted average price of seven-day repo also edged up by about 2 basis points to 2.2056 percent.
Traders said higher short-term money rates were driven up due to quarter-end demand for funds.
Companies and financial institutions usually have to shore up their cash positions towards the month-end and quarter-end for various needs and administrative requirements.
However, market watchers said such tightness was unlikely to last as official liquidity support would take effect soon.
Monetary easing measures will come into effect and may help alleviate the tight funding conditions soon, said Ming Ming, chief economist at Citic Securities.
The People’s Bank of China (PBOC) said it would cut the reserve requirement ratio (RRR) for all banks by 25 basis points from March 27.
China kept its benchmark lending rates unchanged for the seventh straight month in March, as expected, with the economy already benefiting from policy actions taken last week as it recovers from the pandemic.
The need for more imminent monetary easing subsided after the People’s Bank of China (PBOC) said on March 17 it would cut the amount of cash banks must set aside as reserves, market watchers said. – Reuters
