China money rates fall after record PBOC cash injection
* PBOC injects 395 bln yuan, a single-day record * Move signals continued use of repos to adjust liquidity * Major cash flows into market expected in Nov, Dec * PBOC need not cut RRR until late Dec - traders By Lu Jianxin and Gabriel Wildau SHANGHAI, Oct 30 (Reuters) - China's short-term lending rates tumbled on Tuesday after the central bank injected a single-day record amount of cash into the banking system in its regular open market operations, helping ease a squeeze caused by corporate tax payments. The weighted average seven-day bond repurchase rate lost 105 basis points to 3.2684 percent by midday from a five-week high of 4.3169 percent at the close on Monday. The 14-day repo rate fell to 4.7677 percent from 4.7939 percent, and the overnight one-day repo rate plunged to 3.0782 percent from 4.4900 percent. The People's Bank of China (PBOC) injected 395 billion yuan ($63 billion) into the banking system through seven- and 28-day reverse bond repurchase agreements on Tuesday. As there will be a net drain of 189 billion yuan from maturing bills and reverse reports, Tuesday's record injection means the PBOC has already pumped a net 206 billion yuan into the system this week. The central bank will conduct another regular open market operations on Thursday. It conducted a net drain of 70 billion yuan from the banking system last week. "Huge reverse repo business implies that the PBOC will continue to rely on open market operations to adjust short-term liquidity," said a trader at an Asian bank in Shanghai. "With large amounts of money expected to flow into the market in the next two months, the PBOC does not need to ease monetary policy by a cut in banks' required reserve ratios (RRR) at least until late December." Chinese firms are required to pay their third-quarter income tax by Oct. 31, and companies have mostly made their payments. Liquidity conditions are expected to improve in early November, traders said. Liquidity will remain loose for most parts of November and December partly because the Ministry of Finance usually injects 1 to 2 trillion yuan ($160 to $320 billion) into the banking system over these two months to refund a portion of corporate income taxes pre-paid earlier in the year. As China's yuan has hit repeated record highs this month, traders suspect that the PBOC may have intervened in trading to support the yuan's value ahead of the U.S. elections. The central band may thus automatically inject yuan liquidity into the system, which will boost the supply of long-term money. Current Prev close Change (pct) (bps) 7-day repo 3.2684 4.3169 -104.85 7-day SHIBOR 3.2361 4.1958 - 95.97 Note: Repo rate is weighted average. ($1 = 6.2459 Chinese yuan) (Editing by Richard Borsuk)
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