 "China loosens monetary policy further")
China's central bank refrained from selling repurchase agreements for the first time since July, loosening monetary policy further as a report showed industrial companies' profits fell by the most in two years.
The People's Bank of China didn't conduct any open-market operations in Thursday's auction window, after cutting interest rates last week for the first time since 2012. It last suspended sales of repos, which drain funds from the banking system, in the week of July 21 as initial public offerings boosted cash demand. Guotai Junan Securities Co. estimated such share sales tied up 1.6 trillion yuan ($261 billion) this week, while maturing repos injected a net 35 billion yuan.
China is headed for its slowest full-year economic expansion since 1990 amid a property slump, weakening industrial output and factory-gate deflation. There's scope for further rate cuts or even a reduction in banks' reserve requirements, said Liu Jiazhang, a strategist at Tianhong Asset Management Co., which manages the nation's biggest money-market fund.
It is "very likely" the central bank will in December start injecting funds into the financial system using reverse-repurchase agreements, said Becky Liu, a strategist at Standard Chartered Plc in Hong Kong. "IPOs this week have brought volatility and, given the very limited amount of maturing contracts in the next couple of weeks, it's no surprise that it suspended repos today."
Money rates
The seven-day repurchase rate, a gauge of interbank funding availability, fell as much as 10 basis points, or 0.10 percentage point, to 3.22 per cent in Shanghai, a weighted average compiled by the National Interbank Funding Center shows. It was four basis points higher at 3.36 per cent as of 2:10 pm local time. A rate for overnight loans on the Shanghai Stock Exchange dropped 7.62 percentage points to 10 per cent, after surging to a three-month high of 42 per cent on November 25.
The PBOC halved the amount of 14-day repos sold to 10 billion yuan on November 20, and again lowered it to 5 billion yuan on November 25 when the interest rate it pays on the contracts was also cut by 20 basis points to 3.2 per cent. The central bank on November 21 lowered its benchmark one-year lending and deposit rates by 0.4 percentage point and 0.25 percentage point, respectively, to support the economy.
The cuts were triggered by rising real interest rates, a decision that doesn't signal a change in the central bank's prudent monetary policy, PBOC Deputy Governor Hu Xiaolian said at a forum in Beijing on Thursday. "We are very confident about sustainable and healthy growth," Hu said. "We don't see any need to change monetary policy direction at present."
Gross domestic product is forecast to expand 7.4 per cent in 2014, down from an average 10.2 per cent in the past decade, according to the median estimate in a Bloomberg survey. Industrial profits in China fell 2.1 per cent from a year earlier in October, the biggest decline since August 2012, government data showed on Thursday.
The halt to repo sales was "an expected move following the rate cut in the previous week," said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. "Market interest rates remain sticky in general. This reflects a policy dilemma faced by the Chinese authorities as the rate cut alone cannot manage market expectations."
The yield on government bonds due September 2024 was unchanged today at 3.54 per cent, after sliding 16 basis points since the interest-rate cut, prices from the National Interbank Funding Center show. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, increased four basis points to 2.85 per cent, trimming this week's drop to 27 basis points, data compiled by Bloomberg show.
There will probably be two more rate cuts by mid-2015, each by 25 basis points, and banks' reserve-requirement ratios are forecast to be lowered by 150 basis points cumulatively next year, HSBC Holdings Plc economists Qu Hongbin and Julia Wang wrote in a November 24 report.
The People's Bank of China didn't conduct any open-market operations in Thursday's auction window, after cutting interest rates last week for the first time since 2012. It last suspended sales of repos, which drain funds from the banking system, in the week of July 21 as initial public offerings boosted cash demand. Guotai Junan Securities Co. estimated such share sales tied up 1.6 trillion yuan ($261 billion) this week, while maturing repos injected a net 35 billion yuan.
China is headed for its slowest full-year economic expansion since 1990 amid a property slump, weakening industrial output and factory-gate deflation. There's scope for further rate cuts or even a reduction in banks' reserve requirements, said Liu Jiazhang, a strategist at Tianhong Asset Management Co., which manages the nation's biggest money-market fund.
It is "very likely" the central bank will in December start injecting funds into the financial system using reverse-repurchase agreements, said Becky Liu, a strategist at Standard Chartered Plc in Hong Kong. "IPOs this week have brought volatility and, given the very limited amount of maturing contracts in the next couple of weeks, it's no surprise that it suspended repos today."
Money rates
The seven-day repurchase rate, a gauge of interbank funding availability, fell as much as 10 basis points, or 0.10 percentage point, to 3.22 per cent in Shanghai, a weighted average compiled by the National Interbank Funding Center shows. It was four basis points higher at 3.36 per cent as of 2:10 pm local time. A rate for overnight loans on the Shanghai Stock Exchange dropped 7.62 percentage points to 10 per cent, after surging to a three-month high of 42 per cent on November 25.
The PBOC halved the amount of 14-day repos sold to 10 billion yuan on November 20, and again lowered it to 5 billion yuan on November 25 when the interest rate it pays on the contracts was also cut by 20 basis points to 3.2 per cent. The central bank on November 21 lowered its benchmark one-year lending and deposit rates by 0.4 percentage point and 0.25 percentage point, respectively, to support the economy.
The cuts were triggered by rising real interest rates, a decision that doesn't signal a change in the central bank's prudent monetary policy, PBOC Deputy Governor Hu Xiaolian said at a forum in Beijing on Thursday. "We are very confident about sustainable and healthy growth," Hu said. "We don't see any need to change monetary policy direction at present."
Gross domestic product is forecast to expand 7.4 per cent in 2014, down from an average 10.2 per cent in the past decade, according to the median estimate in a Bloomberg survey. Industrial profits in China fell 2.1 per cent from a year earlier in October, the biggest decline since August 2012, government data showed on Thursday.
The halt to repo sales was "an expected move following the rate cut in the previous week," said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. "Market interest rates remain sticky in general. This reflects a policy dilemma faced by the Chinese authorities as the rate cut alone cannot manage market expectations."
The yield on government bonds due September 2024 was unchanged today at 3.54 per cent, after sliding 16 basis points since the interest-rate cut, prices from the National Interbank Funding Center show. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, increased four basis points to 2.85 per cent, trimming this week's drop to 27 basis points, data compiled by Bloomberg show.
There will probably be two more rate cuts by mid-2015, each by 25 basis points, and banks' reserve-requirement ratios are forecast to be lowered by 150 basis points cumulatively next year, HSBC Holdings Plc economists Qu Hongbin and Julia Wang wrote in a November 24 report.