China's money rates edge up, cross-holiday tenor attracts demand

Wed Jan 30, 2013 12:25am EST

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* Money rates rise on holiday cash demand
    * Strong demand for 21-day liquidity
    * Conditions may tighten further next week
    * But holiday squeeze should be less severe this year

    By Chen Yixin and Gabriel Wildau
    SHANGHAI, Jan 30 (Reuters) - China's money rates rose on
Wednesday, as dealers reported strong demand for loans that
extend across the coming holiday period.
    "Money conditions are good and (liquidity) remains
relatively ample, but holiday demand is still strong. City
commercial and joint-stock banks need to borrow money," said a
dealer at a state-owned bank in Beijing.
    Dealers observed especially strong demand for 21-day
funding, which would extend through both the Lunar New Year
holiday and the next two reserve requirement adjustment periods.
    The weighted-average 21-day bond repurchase rate
 hit 4.07 percent, the highest level since Jan 4,
with dealers reporting heavy volume of about 60 billion yuan
($9.65 billion) through midday.
    The interbank market will be closed from Feb. 9 to 15 for
the Spring Festival holidays. 
    The benchmark seven-day bond repo rate rose to
3.23 percent on Wednesday, up from its highest level since Jan 4
and up from 3.11 percent on Tuesday. 
    Month-end cash demand has now driven the rate up by 55 basis
points since hitting a six-week low of 2.68 percent last Friday.
    Market players expected the 7-day rate could rise around
3.35 percent, which is the rate of central bank's seven-day
reverse repo.
    In its latest weekly report on domestic interest rates,
China International Capital Corporation said that while money
conditions will tighten ahead of the holiday, the cash crunch
will be less severe than last year due to rising foreign
exchange purchases in January. Such purchases inject yuan
liquidity into the interbank market.

                                 Current  Prev close  Change
                                       (pct)           (bps)  
7-day repo         3.2310     3.1064    +12.46
7-day SHIBOR           3.2360     3.0995    +13.65  
 Note: Repo rate is weighted average.
($1 = 6.22 Chinese yuan)

 (Editing by Richard Borsuk)