China money rates mixed, sign of looser conditions ahead

* Seven-day repo rate rises but 14-day rate tumbles
* Huge PBOC cash injection boosts liquidity
* Liquidity conditions expected to improve further next week
* Loose money expected for most of November, December

By Lu Jianxin and Gabriel Wildau
SHANGHAI, Nov 1 (Reuters) - China's short-term lending rates
were mixed on Thursday, with the weekly repo rate rising but the
bi-weekly rate slumping, indicating that the market expects
liquidity conditions will improve in about a week's time despite
a temporary shortfall.
The weighted average 14-day bond repurchase rate
tumbled 70.65 basis points to 3.4741 percent by
midday from 4.1806 percent at the close of Wednesday.
But the seven-day bond repurchase rate rose
20.04 bps to 3.4292 percent from 3.2288 percent, while the
overnight rate edged higher to 3.0547 percent from
2.9535 percent.
The People's Bank of China (PBOC) conducted its largest-ever
net fund injection this week, signaling an intention to keep
money market conditions relatively loose to support lending to
the real economy.
The PBOC injected 173 billion yuan ($27.74 billion) into the
money markets through reverse bond repurchase agreements on
Thursday, traders said, meaning it will inject a net 379 billion
yuan into the market this week.
The seven-day rate may come down beginning on Thursday
afternoon and into Friday. In recent weeks the seven-day rate
has tended not to respond immediately to the PBOC's open market
operations, with rates falling sharply only on the day following
the reverse repo auction.
Liquidity conditions are expected to ease further by the
middle of next week when banks finish paying additional required
reserves based on their end-November deposits early in the week,
with Thursday's rise in the seven-day repo rate reflecting cash
calls until that time, traders said.
Money rates have staged a roller-coaster performance since
the start of October, with the seven-day repo rate falling to as
low as 2.67 percent until cash calls from corporate
third-quarter tax payments in October set in late last week,
pushing the benchmark to as high as 4.31 percent by Monday.
"There are actually no signs of a liquidity crunch in the
market," said a trader at a Chinese commercial bank in Shanghai.
"This is mainly because the central bank injected huge
amounts of money into the market this week. The injection will
cause a huge drain next week, but the market expects the central
bank to continue to use reverse repos to boost supply."
Thursday's injection means that a net 523 billion yuan will
automatically be drained from the money market next week, as
reverse repos mature. But traders widely expect the PBOC will
roll over most of the maturing reverse repos with new ones.
Liquidity is expected to remain loose for most of November
and December, partly because the Ministry of Finance usually
injects 1 to 2 trillion yuan into the banking system over these
two months to refund a portion of corporate income taxes
pre-paid earlier in the year.

Current Prev close Change
(pct) (bps)
7-day repo 3.4292 3.2288 + 20.04

7-day SHIBOR 3.4223 3.2183 + 20.40
Note: Repo rate is weighted average.

($1 = 6.24 Chinese yuan)

(Editing by Jacqueline Wong)