China's money rates slump after PBOC injects money

* 7-day repo rate plunges 172 bps from 7-month high
* PBOC injects 183 bln yuan via reverse repos on Thursday
* Market gauges PBOC's move: is RRR cut still on cards?
* Huge new lending, seen over 1 trln yuan, in focus

By Lu Jianxin and Jacqueline Wong
SHANGHAI, Jan 19 (Reuters) - China's short-term
lending rates tumbled on Thursday as the central bank injected a
huge amount of cash into the market to help relieve a liquidity
squeeze, while banks apppear to have mostly prepared enough
money for the upcoming long holiday.
The money market has been gripped by an acute shortfall of
cash over the past several weeks, with banks being hit by waves
of deposit withdrawals ahead of the Lunar New Year, the most
important Chinese holiday and a time of peak consumer spending.
The People's Bank of China conducted 14-day reverse bond
repurchase business worth 183 billion yuan ($29 billion) on
Thursday, continuing to inject cash into the market and having
conducted such business every day so far this week.
But the market is still disappointed at the PBOC's failure
to cut banks' reserve requirement ratios (RRR). Such a cut
leaves long-term money in the market while the maturation of the
14-day reverse repos automatically drains money after the
holiday.
"Money market conditions have improved greatly today but
worries over longer-term cash calls are still lingering," said a
dealer at a Chinese commercial bank in Shanghai.
"The market is still gauging whether the PBOC will reduce
RRR in the near term, but people appear to have become less
certain of such a cut."
The benchmark weighted-average seven-day bond repurchase
rate plummeted 172 basis points to 6.0085 percent
from a seven-month high of 7.7249 percent at Wednesday's close.
The shortest overnight one-day repo rate dived
to 6.5025 percent from 8.1338 percent and the 14-day repo rate
slumped to 6.5995 percent from 8.9261 percent.

FRONT-LOAD LENDING
Talk of an imminent RRR cut has been swirling in the market
since mid-December, with some traders still expecting a PBOC
announcement as early as this week, which ensures the cut takes
effect right after the holiday.
But increasing signs that Chinese banks may have rushed to
front-load lending in the first few weeks of 2012 could have
been a key reason why the central bank had not implemented an
RRR cut but shorter-term reverse repos to adjust money supply.
China banks have extended new loans worth a combined more
than 1 trillion yuan so far this month, some market estimates
say, meaning the market will not be short of cash right after
the temporary pre-holiday squeeze is over in late January,
traders said.
"The PBOC has first-hand information about bank lending, and
that could be the reason behind the delay of a much anticipated
RRR cut," said a trader at a Chinese brokerage in Shenzhen.
"If the delay is the result of too many new loans this
month, the central bank could postpone an RRR cut even longer."
Bank lending surges at the start of every year in China as
banks rush to get loans out of the door to maximise profits and
win market share.
Banking sources told Reuters last week that the PBOC had
already instructed banks to restrain lending in the first few
months in an early warning against a seasonal surge in bank
loans.
The recent money market crunch has also spread to China's
interest rate swaps, with the IRS curve having remained slightly
inverted since early January thanks to a jump in one-year IRS.
One-year IRS were quoted at 3.02 percent at
midday on Thursday, higher than 3.01 percent for benchmark
five-year IRS, which rose slightly from Wednesday's
close of 2.99 percent.
Current Prev close Change
(pct) (bps)
7-day repo 6.0085 7.7249 -171.64
7-day SHIBOR 6.0117 7.9000 -188.83
Note: Repo rate is weighted average.

($1 = 6.31 Chinese yuan)