China’s overnight repo rate hits two-year high on signs of liquidity stress

LIQUIDITY conditions in China’s interbank money markets showed signs of stress on Tuesday (Mar 21) 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 per cent, 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 per cent.

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.

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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 said it would cut the reserve requirement ratio for all banks by 25 basis points from Mar 27. REUTERS