(Reporting by Winni Zhou and Brenda Goh; Editing by Muralikumar
Anantharaman and Jacqueline Wong)
(Updates prices, adds analyst comments in paragraphs 9-10 and
details)
SHANGHAI, March 21 (Reuters) - Liquidity conditions in
China's interbank money markets showed signs of stress on
Tuesday 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, with
volume-weighted average price of overnight repo traded in the
interbank market surging to a high of 2.4505% in
morning deals, the highest since February 2021, before trading
at 2.4290% as of 0803 GMT.
The volume-weighted average price of seven-day repo also edged up by nearly 4 basis points to 2.2271%.
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, some market watchers said such tightness was
unlikely to last as official liquidity support would take effect
soon.
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 (PBOC) said it would cut the
reserve requirement ratio (RRR) for all banks by 25 basis points
from March 27.
"The market will still need reverse repo operations to
smooth the quarter-end funding squeeze," analysts at RBC Capital
Markets said in a note.
"This squeeze is not very obvious looking at the FX market,"
they added, but noted onshore dollar funding costs were high.
Dollar funding strains have driven up onshore dollar
borrowing costs, prompting some speculations of a possible cut
to the amount of foreign exchange reserves that banks must hold
to ease the pressure.
The overnight dollar borrowing cost in the onshore interbank
market is trading at a premium of nearly 10
basis points to the SOFR , a Libor replacement
preferred by the Federal Reserve, having risen above it since
February.
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