[SHANGHAI] China's money market rates were little changed this week amid a spurt of initial public offerings (IPOs), with traders divided over whether the central bank will cut banks' required reserve ratio (RRR) after the latest credit data.
Loan data on Thursday pointed to the resurgence of shadow banking activities despite an ongoing crackdown on the sector by regulators, traders said. Pumping more money into the system now may only encourage more speculative activities.
The central bank's latest reform to adjust the way to measure bank deposits and loans has also failed to inject much money into the banking system as some had expected.
By midday, the weighted average of the benchmark seven-day repo rate had climbed a moderate 9 basis points from last Friday's close to 3.85 per cent.
The active 14-day rate dropped 14 basis points to 4.65 per cent, while the one-day rate fell 16 basis points.
"The market is calm," said a trader at a Chinese city commercial bank in Shanghai.
Twenty-two IPOs launched in the Shanghai and Shenzhen stock exchanges were opened to investor subscriptions this week, locking up around 2 trillion yuan, according to stock analysts'estimates.
The impact on the interbank money market has been mild as investors mainly raise funds by selling existing shareholdings. For example, the overnight pledged repo rate in the Shanghai bourse climbed as high as 14 per cent on Thursday.
The December credit data set off alarm bells, showing shadow banking portion in the total social financing (TSF) climbed to the highest since January, reversing a shrinking trend seen in the second half of 2014.
Some traders said if the central bank cut the RRR now, money injected is more likely to flow into speculative sectors, such as property, rather than into real economic activity.
As a result, although the market has long anticipated an RRR cut to set a floor for a slowdown of the world's second-largest economy, it seems less likely in the short term, they said.
"The central bank probably can wait until the results of the first-quarter economic performance to decide whether to do it," said a trader at a Chinese state-owned bank in Shanghai.
In a sign of official caution over a liquidity loosening, the People's Bank of China explained on Thursday that its latest move to adjust the way to measure bank deposits and loans was not a form of easing, but a reform to improve supervision of banks' operations.