China will hold an auction Wednesday for all commercial banks as
it seeks to deposit government cash with them for the first time
this year as it tries to bolster returns on the money.
The move, which comes at a time of large initial public
offerings in the domestic stock markets, reflects the government's
intention to minimize liquidity pressure of pumping funds into the
banking system.
The central government will place 30 billion yuan (US$3.89
billion) of cash from the treasury with lenders for six months
ended on August 25, according to the Central Treasury Cash
Management Operational Office.
China initiated a campaign in June last year to use government
cash to buy back treasury bonds and be deposited at commercial
banks. Commercial banks can bid for the rates at which they would
like to accept the deposits.
The Ministry of Finance deposits most of its 1.42 trillion yuan
in treasury funds at the central bank, with an annual interest rate
of 0.72 percent.
The central government in December for the first time deposited
20 billion yuan of cash from the treasury with lenders for a
three-month period ended March 6, with an annualized coupon of 2.7
percent.
The People's Bank of China, the central bank, has set the
benchmark three-month deposit rate at 1.98 percent, with a 2.43
percent rate on the half-year deposits.
"I don't expect the rate will be high enough to match that of
last year's auction, which was bolstered by banks' need to meet
targets on deposits," said a Shanghai-based trader, who asked to
remain anonymous.
"The timing is well chosen to coincide with big stock sales to
help, not add too much pressure on, the liquidity side."
Mainland retail investors will have the option to subscribe for
yuan-backed A shares of Bank of Communications today, which is
likely to raise more than US$3.2 billion. The funds will be
unfrozen next Monday.
(Shanghai Daily April 25, 2007)