A gauge of China’s overnight funding cost quadrupled after falling to a record low this week as the demand for cash increased into the year-end.
(Bloomberg) — A gauge of China’s overnight funding cost quadrupled after falling to a record low this week as the demand for cash increased into the year-end.
The overnight repo rate jumped to 1.95% on Friday from a record low of 0.42% touched in the previous session, according to data compiled by Bloomberg going back to 2006.
The spike in funding costs came even after the People’s Bank of China added 975 billion yuan ($140 billion) via open market operations this week, the biggest cash injection since January 2019.
“The spike of overnight repo is attributable to the year-end liquidity demand,” said Carie Li, global market strategist at DBS Bank in Hong Kong.
“Moving into January, the overnight repo may be volatile as the abating year-end effect may allow it to retrace lower, whereas other seasonal factors like Lunar New Year and tax payment may add some upward momentum to the rate.”
Traders are watching the pace of central bank cash injections as it seeks to maintain liquidity to boost the Covid-battered economy and also as the demand for cash increases due to festive spending during the Lunar New Year holidays.
Winson Phoon, head of fixed income research at Maybank Securities Pte.
in Singapore expects the overnight rate to average around 1.5% in January while DBS’ Li sees it around 1%-2%.
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