China's key money rate hits 5-week low, ignores large cash drain

* Seven-day repo rate falls 19 bps on abundant liquidity
* PBOC's light injection causes 87 bln yuan net drain Thurs
* Weekly drain of 221 bln yuan second biggest this year
* Little room for 7-day repo rate to fall further - traders

By Lu Jianxin and Pete Sweeney
SHANGHAI, Oct 18 (Reuters) - China's main benchmark money
rate fell 19 basis points to a five-week low on Thursday,
despite a huge net cash drain in open market operations.
The central bank allowed a net 221 billion yuan to drain
from money markets this week as previously issued reverse repos
matured, the second-largest drain of the year.
However, both drains occurred in the aftermath of week-long
holidays, absorbing excess cash previously injected into the
system to tide banks over while markets were closed.
"This week's drain is a typical central bank re-adjustment
of liquidity after the holiday, so it does not have a major
impact on the money markets," said a trader at a major Chinese
state-owned bank in Beijing.
"But the seven-day repo rate has fallen too much this week,
and it will have limited room to fall further in coming weeks."
The weighted-average seven-day bond repurchase rate
dropped to 2.6817 percent in late morning trade,
its lowest since Sept. 4 and down from Wednesday's close of
2.8683 percent. It has stayed below the 3 percent line that
market watchers say signals loose conditions all this week.
Liquidity has been improving since Oct. 8, when the market
resumed trading after a long holiday.
The People's Bank of China (PBOC) conducted 30 billion yuan
($4.8 billion) in reverse repos on Thursday to help some banks
that lacked funds, but with 117 billion yuan worth of reverse
repos maturing the same day, the central bank ended up draining
a net 87 billion yuan for the day.
Among other tenors, the one-day rate fell to
2.2021 percent from 2.2258 percent but the 14-day repo rate
rose to 3.4044 percent from 3.1801 percent.
Traders said there was no impact from China's third-quarter
economic figures released on Thursday, as the data was in line
with expectations and had been factored into market rates.
China's economy grew 7.4 percent in the July-September
quarter from a year earlier, the National Bureau of Statistics
said on Thursday, the slowest pace since the first quarter of
2009 as the global financial crisis raged.

Current Prev close Change
(pct) (bps)
7-day repo 2.6817 2.8683 - 18.66
Note: Repo rate is weighted average.

($1 = 6.2558 Chinese yuan)

(Editing by Jacqueline Wong)