Chinese Treasury Deposit Rates Hit Five-Month High
Duan Siyu
DATE:  Dec 10 2018
/ SOURCE:  yicai
Chinese Treasury Deposit Rates Hit Five-Month High Chinese Treasury Deposit Rates Hit Five-Month High

(Yicai Global) Dec. 10 -- The interest rate for Chinese treasury deposits has soared to a new high since July on rising demand for cash as the year comes to a close.

The latest CNY100 billion (USD14.5 billion) treasury deposit went for 4.02 percent, the People's Bank of China said in a statement on Dec. 7. That compared to 3.71 percent for the last auctioned deposit, which spanned a three-month term, and was much higher than the overnight Shanghai Interbank Offered Rate, which rose 1.8 percentage points to 2.828 percent that evening.

China's treasury cash is held at the central bank, but commercial banks also hold chunks of the savings as short-term deposits. Eligible commercial banks compete for the holdings through a bidding process.

The rising interest rate indicates higher demand for cash in the banking sector, Ming Ming, chief fixed income analyst at CITIC Securities, told Yicai Global. Lenders mostly want the cash so they will be liquid at the year-end, he said.

His thoughts were supported by Chen Jian, a fixed income analyst at China International Capital, show said that pressure to appear liquid at the end of the year, and weak bank deposits through 2018 have pushed the interest rate up.

Most of the bidders were small- and medium-sized institutions, added Wang Yifeng, director of financial research at China Mingsheng Academy. Urban and rural commercial banks made up the bulk of them, he told Yicai Global.

Still Liquid

The higher rate is not an indication that tight cash flow is affecting the market, Ming added, saying the strong demand was nothing more than a reflection of banks' desires to hold deposits at the end of the year.

Market rates have been going down since the beginning of the month and fell below the central bank's open market repurchase rate on Dec. 5 and Dec. 6, he added, saying the PBOC has not conducted any open market operations for 31 straight working days.

The central bank wants to maintain a sufficient supply of funds and keep the market interest rate in line with the policy interest rate and will use medium-term lending facilities, treasury deposits and other tools to strike change if needed, Ming said, adding that the PBOC will likely maintain its loose monetary policy.

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Keywords:   Treasury Deposit,Interest Rate,Market Liquidity,Monetary Policy