China extends interbank trading hours as rates spike

SHANGHAI Thu Dec 19, 2013 3:16am EST

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SHANGHAI Dec 19 (Reuters) - China's interbank trading system extended trading by 30 minutes to 5 p.m. on Thursday, giving traders more time to access funds as short-term money rates hit record highs after the central bank decided against injecting cash in the morning.

The People's Bank of China (PBOC) held off from engaging in open market operations for a fifth consecutive session on Thursday, , causing one-year interest-rate swaps, based on the benchmark seven-day bond repurchase rate, to hit a record high of 4.99 percent at midday.

The seven-day repo also rose dramatically, at one point nearly hitting 10 percent, its highest level since a June cash crunch, as traders scrambled for funds.

The PBOC has the option of conducting short-term liquidity operations (SLOs) with selected banks which are particularly short of funds. Such operations are conducted behind closed doors and data on them is only published much later.

Most traders believe the People's Bank of China is sending a message targeting specific players in the murky world of Chinese shadow banking, but the opaque way in which the strategy has been executed has produced bouts of volatility.

(Editing by Simon Cameron-Moore)

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