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Published on : Jul 03, 2014

The decline of cash demand after banks met their quarter-end financing requirements was signaled as China’s money-market rate declines by the most in the past two months.

China’s lenders generally boost of deposits before reporting any financial positions to the China’s central bank during the end of each quarter. However, this requires them to set aside more funding, because reserves start at the following month.

It was reported that the People’s Bank of China has drained USD 3.2 billion yesterday at a sale period of 28-day repurchase agreements. These operations were put on a halt for the first time in the four months span.

The rate of seven-day repurchase helps to gauge the availability of interbank financing. It fell 54 basis points or 0.54 % point. It was reported according to a weighted average from National Interbank Funding Center as 3.91 percent during 10:27 AM in Shanghai.

According to the Marketing Director, Wang Ming at Shanghai Yaozhi Asset Management LLP, the cash hoarding in the previous month during the quarter-end regulatory checks indicates that the payment of reserves from larger deposit base will continue to influence interbank liquidity into the next month. The director also stated that the market has passed through the most difficult time and it is expected that the rate of 7-day repo will slowly decline to 3.5 percent in the following days.

As the official PMI (Purchasing Manager’s Index) for manufacturing has climbed to 51 during the previous month, which is the highest for this year, a private output estimation of 50.7 was predicted as the first reading for this year was 50. This is the line which divides expansion from contraction.