China c.bank offers short-term cash to small banks after money rates rise - sources

HONG KONG/SHANGHAI Mon Jan 20, 2014 4:13am EST

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HONG KONG/SHANGHAI Jan 20 (Reuters) - China's central bank will offer up to 120 billion yuan ($19.8 billion) in extraordinary liquidity support to smaller banks via its Short-term Lending Facility (SLF), three sources with direct knowledge of the decision told Reuters on Monday.

The move by the People's Bank of China (PBOC) comes as the interest rate that banks charge each other for short-term loans has spiked in recent days, due largely to elevated cash demand in the run-up to the Chinese Lunar New Year holiday, which begins on Jan. 31.

Two money-market traders at Chinese commercial banks told Reuters that banks incorporated at the regional or local level can apply to the PBOC for fund injections when the interest rate on the overnight bond repurchase rate exceeds 5 percent, the seven-day repo rate exceeds 7 percent, or the 14-day repo rate exceeds 8 percent.

The seven-day rate closed at 6.59 percent on a weighted-average basis on Friday but individual trades occurred as high as 10 percent.

A PBOC spokesman declined to comment. ($1 = 6.0502 Chinese yuan) (Reporting by Hong Kong, Shanghai and Beijing newsrooms; Writing by Gabriel Wildau; Editing by Kazunori Takada)

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