China's money rates up after PBOC, taking Fed's cue, lifts market rates

[SHANGHAI] China's primary money rate edged higher this week after the central bank lifted short- and medium-term market rates on Thursday, just hours after the US Federal Reserves tightened policy.

The People's Bank of China (PBOC) increased rates on reverse repurchase agreements, or reverse repos, used for open market operations by five basis points for the 7-day and 28-day tenors.

It also increased rates on its one-year medium-term lending facility (MLF) by five basis points.

Economists were of the view the PBOC hikes were a symbolic move meant to signal authorities' commitment to extend their campaign to reduce leverage and curb risky lending.

The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity in China, was 2.9198 per cent on Friday afternoon, more than nine basis points higher than the previous week's closing average rate of 2.8264 per cent.

Many market watchers expect China's central bank to raise market rates further next year, in line the Fed's tightening policy track for 2018.

Economists at ANZ said the timing of the PBOC's decision to raise market rates was "a bit earlier" and the pace is smaller than expected.

"We now expect the PBOC to hike rates by 35 basis points in total in 2018 to take the seven-day reverse repo rate to 2.85 per cent by the end of 2018," they said in a note.

China International Capital Corporation (CICC) expected Beijing to continue with "monetary tapering", and forecast a cumulative 30 basis points increase in the reverse repo rate next year.

Traders said PBOC's small rates adjustment didn't hurt market sentiment, noting the central bank has injected more funds into the market than they had expected through different bond instruments this week.

In the open market operations, the PBOC injected a net 80 billion yuan (S$16.31 billion) into market markets via reverse repos, along with another 288 billion yuan via one-year MLF loans, which more than compensated for the maturity of such loans this week.

A batch of 187 billion yuan of MLF loans is set to expire on Saturday.

Many traders said year-end factors would start to weigh on liquidity conditions. Households and companies usually shore up cash positions before the end of the year, when big banks will be reluctant to lend money to their smaller peers.

The Shanghai Interbank Offered Rate (Shibor) for the seven-day tenor rose to 2.8710 per cent, 7.2 basis points higher than last Friday's fix.

The one-day or overnight rate stood at 2.6910 per cent and the 14-day repo stood at 4.1773 per cent.

REUTERS