Title: China money rate falls to 1-1/2-year low ahead of month-end demand

Jul 26, 2022 02:28AM ET

By: AnalysisWatch

China's main money market interest rate hit a 1-1/2-year low on Tuesday, showing no signs of strain due to ample liquidity ahead of a peak in cash demand at the end of the month.

Elevated liquidity levels also led some market participants to question whether easy cash conditions would be sustainable as they turned their attention to this week's policy meeting for more guidance.

The volume-weighted average of overnight repurchase agreements, or repos, traded in the interbank market fell to 1.018 percent around midday Tuesday, the lowest since Jan. 8, 2021.

Banks and companies typically have a higher demand for cash toward the end of the month to meet various administrative and payment needs, which pulls cash out of the banking system to raise interest rates

The seven-day repurchase rate, which can assist financial institutions in weathering peak demand for funds, increased by only 7 basis points on Tuesday to 1.5870 percent.

It was far below the People's Bank of China's reverse repurchase rate for the same period of 2.1 percent.

The central bank injected 5 billion yuan $740.22 million into the banking system on Tuesday, resulting in a net withdrawal of 431 billion yuan this month.

Traders and market watchers are expecting more details on the policy stance at this week's Politburo meeting, as the top decision-making body will discuss economic policies until the end of the year.

Consumer inflation increased to 2.5 percent in June from a year earlier, remaining within the target range of 3 percent and far below the global average.

The total volume of repos traded in the interbank market reached an all-time high of 6.83 trillion yuan on Monday, according to official data, with overnight repos accounting for 86 percent of the turnover.

Typically, investors take advantage of the ultra-low price of the short-term funding instrument to increase their investment in government bonds for a profit.

1 USD = 6.7529 yuan