PBOC statement gives equities slight boost

Chinese stocks edged higher on Thursday after the central bank sent a subtle easing message amid sliding money market rates.

Gains by large energy companies pushed the benchmark Shanghai Composite Index up 0.3 percent to 2,047 points, following a 0.35 percent increase on Wednesday.

The CSI 300 Index, which includes the largest stocks on both the Shanghai and Shenzhen exchanges, dropped 0.43 percent to 2,154 points.

The People's Bank of China said in a statement through the Xinhua News Agency on Wednesday that banking liquidity is "moderate". Nonetheless, it drained 60 billion yuan ($9.8 billion) from the market through open market operations.

It has drained a net 260 billion yuan over the past two weeks through repurchase transactions.

Many interpret the operations as the onset of another round of tightening, but the PBOC statement described the operations as a post-Lunar New Year "routine". It said: "The repo operation is seasonal and not a change of monetary policy."

The bank also said that money market rates are at a "reasonable level", although recent declines sent rates to near-historic lows. "This message indicates to us that the monetary stance has been loosened subtly for now. There is an incentive for the PBOC to keep it loose from now until at least the end of the National People's Congress," Zhang Zhiwei, an analyst with Nomura Securities Co Ltd, wrote in a report on Thursday.

He added that policy easing may accelerate if macroeconomic data scheduled for release on March 13 disappoints, while maintaining his forecast that the PBOC will cut the reserve requirement ratio by 50 basis points in the second quarter.

China Petroleum & Chemical Corp, known as Sinopec, jumped 6.71 percent in Shanghai after local media reports said it will undertake further restructuring next month.

The Goldman Sachs Group Inc boosted its forecast for Sinopec's Hong Kong Shares, which rose more than 5 percent on Thursday.

PetroChina Co Ltd rose 2.52 percent in Shanghai to 7.74 yuan per share. The CSI 300 Index, which includes the largest stocks on both the Shanghai and Shenzhen exchanges, dropped 0.43 percent to 2,154 points.

In a rare comment on the stock market, the PBOC said that recent declines weren't caused by its liquidity management, because liquidity is abundant. The Shanghai index lost 1.75 percent on Monday and 2.04 percent on Tuesday.

Money market rates have been dropping gradually over the past few weeks, with the benchmark seven-day interbank repurchase rate near record lows.

The rate snapped a 12-day losing streak on Thursday, jumping 34 basis points to 3.43 percent, according to a weighted average compiled by the National Interbank Funding Center. The overnight repurchase rate was little changed at 1.75 percent.

Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch, wrote in a commentary that rates are still too low despite the jump on Thursday. The PBOC's comments sent one-year interest-rate swaps down 13 basis points on Thursday to 4.39 percent.

The swaps are a fixed payment to receive the floating seven-day repurchase rate. The contract reflects market sentiment on the direction of interest rates. The swap rate was down as much as 23 basis points earlier in the day at 4.30 percent, the lowest level since Nov 7 and the biggest decline since June 26.

Huang Hai, an analyst with the SDIC CGOG Futures Co Ltd in Beijing, said: "That the central bank thinks the liquidity moderate when the market interest rate is low means the central bank may use a low short-term interest rate to ensure economic growth."

gaochangxin@chinadaily.com.cn