China money rates jump as banks eye month-end squeeze
* Traders see liquidity tightening near month-end * Market says only c.bank fund injection can ease conditions * C.bank has signaled it wants to avoid another cash squeeze * No RRR cut until after Fed tapering plans emerge - traders By Gabriel Wildau SHANGHAI, Aug 19 (Reuters) - China's key money rates strode higher on Monday, with traders saying that liquidity will tighten further as month-end approaches unless the central bank injects additional funds this week. The benchmark weighted-average seven-day bond repurchase rate rose 28 basis points to 4.1051 near midday, its highest level since Aug. 6. The biggest jump occurred in the 14-day repo rate , whose tenor extends through the end of the month. That rate soared to 5.35 percent on Monday, up from 3.82 percent at Friday's close, the highest level since July 31. Chinese money-market rates often spike at month-end, as banks prepare extra cash to meet regulatory ratios and internal targets on deposits. The overnight repo rate rose 15 bps to 3.41 percent near midday on Monday. The market is now focused on the central bank's open market operations to gauge how much liquidity is likely to tighten at the end of this month. The People's Bank of China (PBOC) has conducted net fund injections through open market operations for nine of the last 11 weeks, but the volumes have been too small to significantly ease liquidity. But in a sign that the PBOC does not want to engineer another cash crunch like the one that slammed the market at the end of June, the central bank guided the interest rates on its reverse repos lower last week. The PBOC auctioned seven-day reverse repos at 3.90 percent last Tuesday, down from 4.40 percent on July 30, while it issued 14-day reverse repos at 4.10 percent, down from 4.50 percent on Aug. 1. The central bank has said it wants yields on its open market instruments to serve as benchmarks for interbank rates. Traders say they expect the PBOC to cut the required reserve ratio at least once in 2013 but that central bank is likely to delay such a move until after Federal Reserve clarifies its plans for tapering its quantitative easing program. A Fed decision on tapering expected in either September or December. Current Prev close Change (pct) (bps) 7-day repo 4.1051 3.8259 +27.92 7-day SHIBOR 4.0920 3.7720 +32.00 Note: Repo rate is weighted average. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> MARKET DRIVERS - In wake of cash crunch, PBOC commits to transparency but quietly tightens grip - Capital outflows, slowing growth fuel monetary easing debate - CHINA MONEY-Tighter interbank regulation seen after cash squeeze - Collapse in China bond volumes exposes market's seamy side - China reform push means June turmoil may be just the beginning DATA POINTS - External liquidity tracker: Collapse in FX purchases hurts liquidity in May link.reuters.com/pem75t - Impact of maturing central bank bills and repos GRAPHIC: link.reuters.com/pem75t - Chinese government bond curve flattens on liquidity squeeze, growth concerns GRAPHIC: link.reuters.com/jyr95t - China's interest-rate swap curve is inverted on severe liquidity squeeze GRAPHIC: link.reuters.com/ryr95t - China corporate bond spreads have narrowed slightly GRAPHIC: link.reuters.com/bas95t - Hot money tracker: Hot money inflows have returned in 2013, boosting liquidity GRAPHIC: link.reuters.com/saz74t >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> (Editing by Richard Borsuk)
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