China’s short-term money market rates extended their fall from six-month peaks on Wednesday as corporate tax refunds deposited to commercial banks helped ease liquidity conditions, traders said.
The Ministry of Finance typically hands back large portions of tax refunds to companies around the end of the year. Those payments are transferred to commercial banks in the name of fiscal deposits.
“It appears cash flow improved today as fiscal deposits enabled the market to sustain relatively low lending rates,” said a trader at a major Chinese state-owned bank in Shanghai.
The ministry has been injecting more than 1 trillion yuan ($165 billion) of liquidity into the market via the fiscal deposits in December over the past few years. Traders expect the ministry to pump in a similar amount this year.
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