PBOC Tightens Liquidity, Pushing Money-Rates to 5-Month Peak says Leiko Tokyo Securities

TOKYO, August 29, 2017 /PRNewswire/ --

China's People's Bank of China (PBOC) is trying to fight riskier financing and impose the use of longer-term loans by actively draining cash through its open-market operations reported Leiko Tokyo Securities.

On Wednesday, August 23, China's key short-term money rate reached a peak in almost five months. The People's Bank of China has drained funds for the third consecutive day, trying to keep consistent during a campaign against more speculative forms of financing. Thus, the liquidity is under pressure, as demand for cash seems to become more unbalanced against the supply.

Since the last month of 2014, there hasn't been observed a higher figure in this regard. This was the second auction in less than seven days, after the Friday auction on August 18, which operated with three-month treasury deposits as well. This week, PBOC has drawn 200 billion Yuan so far.

China's money markets will have to face more difficulties since the demand for cash is expected to increase next month due to its cyclical nature based on quarter-ends (September is the last month of this quarter). Also, there is a 2.3 trillion Yuan in maturities of negotiable certificates of deposit, which is a record.

Money liquidity has been under pressure for the whole week, as the Central Bank has been drained funds from Monday to Thursday. It seems that the bank wants to force the operations with longer-term financing.

The net drains have increased concerns of market participants, especially after similar tightening activities applied by the PBOC in June and July. Some traders commented about the tight cash conditions during these days.

Speaking about the situation in the China's money market, the head of research at Leiko Tokyo Securities, Koyasu Oda, commented: "We will keep an eye on how the People's Bank of China maneuver its activities in the open-market operations till the end of the quarter, which ends next month. I feel that liquidity will keep tight next week as well."

On Wednesday, the volume-weighted average rate of the benchmark 14-day repo traded in the interbank market increased two basis points to 4.4476%, the peak since the last day of March. On Friday, this indicator eased to 4.1625%. 14-day repo is the best indicator that shows overall liquidity in the country.

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