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[SHANGHAI] Chinese money market rates were down the most on the week since mid-May on Friday, following a net injection of 50 billion yuan (S$10.9 billion) into the money markets through open market operations since Monday.
The central bank issued 85 billion yuan of reverse repurchase agreements (repos) this week, the most since early February before the Lunar New Year.
The People's Bank of China also cut its guidance on the benchmark seven-day repo by 20 basis points to 2.5 per cent on Tuesday.
The benchmark seven-day repo rate was at 2.82 per cent by mid-afternoon on Friday, down 11 basis points (bps) for the week.
The 14-day repo was down 35 bps to 3.25 per cent for the week, while the one-day was up 20 bps to 1.14 per cent.
After driving down interbank rates to multi-year lows with a series of guidance cuts in mid-March and April, the central bank suspended open market operations for eight straight weeks in May and early June.
Money rates began rising again in mid-June, however, as market participants eyed a new round of IPOs and a plunging stock market - driven in significant part by borrowed cash.
The central bank finally acted to contain rates in the last two weeks of June, cutting reserve ratio requirements for selected banks on June 27 and resuming cash injections through the money markets the week before.
Even after the recent volatility, money rates still remain quite low by recent standards. At 2.82 per cent, the seven-day repo remains well below its 200-day moving average of 3.48 per cent.
Analysts saw the targeted - rather than across the board - reserve ratio cut as partly a response to still-low money market rates.
"In its press release, the PBOC suggests overall interbank liquidity is still ample", wrote Merrill Lynch economists Xiaojia Zhi and Sylvia Sheng in a June 28 research report following the ratio cut.
"Excess reserves could be RMB 3 trillion and money market rates are still low even though IPOs squeezed short-term liquidity." Nonetheless analysts say that further easing measures are still needed, as real activity remains weak and borrowing costs remain high for many firms, despite some tentative signs of bottoming in the industrial and real estate sectors.
"Despite the recent interest rate cut and targeted RRR cut, we believe the risk of further monetary easing is on the rise, in view of high funding cost in real terms", wrote Helen Qiao, chief Greater China economist at Morgan Stanley in a note.
China has now cut benchmark lending rates by a total of 115 basis points since November, on top of a total of a 150 basis point cut in system-wide reserve requirements.