China's benchmark money rate falls 48 bps after surprise easing

[SHANGHAI] China's benchmark money rate fell 48 basis points to 3.18 per cent on Monday, after the central bank unexpectedly cut benchmark lending rates by 40 basis points on Friday.

The seven-day bond repurchase agreement, considered the most reliable indicator of Chinese money conditions, opened trade at 3.18 per cent, from a weighted average of 3.6553 per cent at Friday's close.

The 14-day rate, slid nearly a full percentage point to 3.48 per cent.

Traders said yields on 10-year government bonds were down nearly 20 basis points.

The surprise interest rate cut, which came after mainland financial markets had closed on Friday, is intended to ease lending conditions, including ameliorating refinancing costs for heavily indebted Chinese companies.

But the degree to which rate cuts will influence short-term money rates - which have long been in accommodative territory even as credit has tightened - is under debate.

Guiding lending rates lower can facilitate more lending and ease refinancing strains, but it is not comparable to the impact of a cut to banks' reserve requirement ratios, which would directly increase base money supply.

Traders expect increased demand for cash in coming weeks due to various factors, including new IPOs hitting the stock market and end of month pressure to make regulatory payments.

These impulses triggered a sharp rise in money rates last week, prompting the PBOC to issue a statement on Friday assuring the market that it would keep liquidity ample.

Eleven IPOs will be launched on the Shanghai and Shenzhen stock exchanges this week, with analysts estimating that they will escrow around 1 trillion yuan.


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