The People’s Bank of China’s support for the yuan is expected to keep banks’ funding pressure elevated in the next few weeks, as a liquidity crunch pushed a key gauge of their short-term borrowing to the highest level since June.
The yield of one-year AAA-rated negotiable certificates of deposit, funding instruments issued by banks, surpassed 2 percent this week, according to data compiled by Bloomberg. That’s a level widely watched by traders, and an eight-month high.
The rate also exceeded that of the one-year medium-term lending facility — policy loans that granted by the central bank every month — for the first time since October.
These signals warning of an onshore cash crunch add to pressure on the PBOC, which has prioritized foreign-exchange stability over easing policy. Financial institutions have been hammered by elevated funding costs since January amid the central bank’s restraint in liquidity operations, delayed policy easing and the halt of PBOC’s bond buying — all seen as measures to prevent the yuan from weakening amid expectations the US will enact more tariffs on exports from China.
With MLF loans unavailable until the next offering in late March, funding may remain restricted unless the central bank expands its cash offerings.
“Liquidity is tight while NCD maturities are heavy for months to come,” said Frances Cheung, head of FX and rates strategy at Oversea-Chinese Banking Corp. “Without active PBOC injections, the funding pressure is likely to stay.”
The one-year NCD rate may move into a range of 2.1 percent to 2.2 percent in the next few weeks if the PBOC refrains from adding liquidity, she said.
BLOOMBERG
One-year NCD rate tops MLF rate for first time since October. Singtao
