While liquidity has improved slightly since the start of the month, analysts expect further tightening of capital in May on the back of multiple factors.
On 3 May interbank rates continued to rise, with the Shibor overnight rate edging higher 0.0276 percentage points to 2.8451%.
The 7 day Shibor rate lifted 0.04 percentage points to hit 2.9130%, while the remaining Shibor rates all showed a consistent trend of increase.
Xie Yaxuan, chief macroeconomics analysts with China Merchants Securities, said to Caixin that capital will continue to tighten in May due to a number of factors including seasonal tax payments, a crackdown on interbank lending and trends on exchange markets.
According to historic data government deposits usually increase in the month of May as a result of seasonal tax factors.
During the past there years government deposits have all posted increases in the month of May, rising by 302.7 billion yuan in 2014, 384.3 billion yuan in 2014 and 161.9 billion last year.
The comparatively modest increase in government deposits in May last year was due to the large scale increase of 931.8 billion yuan in April, due to large-scale bond issuance by local governments.
Xie expects a crackdown on interbank lending and financing to hit both supply and demand of interbank deposits and favour a rise in rates.
According to Xie as interbank assets and debts begin to shrink at certain banks, it will be hard for the money multiplier to take full effect, which will tilt liquidity towards tightening.
The maturation of a large volume of open market funds in May will also put pressure on capital availability. Funds worth 909.5 billion yuan are set to mature this month, including 409.5 billion yuan in medium-term lending facilities (MLF).
Xie also expect shifts on exchange markets to impact liquidity, with reduced interference by the Chinese central bank, and only small-scale outflows of PBOC’s funds outstanding for foreign exchange.