January 22, 2014 / 4:10 AM / 4 years ago

China money rates mixed after massive injection

3 Min Read

SHANGHAI, Jan 22 (Reuters) - China's benchmark money rate slid on Wednesday morning after a generous injection by China's central bank the day before, as cash and better regulatory signaling soothed sentiment, but other rates rose in a sign of enduring caution.

The injection was the first intervention of the year by the People's Bank of China (PBOC), and it came after short-term rates showed signs of spiking on Monday, risking a repetition of the destablising cash crunches that repeatedly rattled investors in 2013.

The PBOC injected 75 billion yuan ($12.40 billion) through seven-day reverse repos during open market operations on Tuesday, and an additional 180 billion yuan through 21-day reverse repos.

It also said it had injected an unspecified amount of cash into specific banks through a standing lending facility (SLF) on Monday afternoon.

The benchmark seven-day bond repurchase agreement weighted average stood at 5.2746 on Wednesday, down from 5.5484 percent at Tuesday's close. The average hit a high point of 6.5920 on Monday, with individual trades as high as 10 percent, as banks scrambled for cash.

An auction of 10-year bonds by the Ministry of Finance on Wednesday morning priced below market expectations.

However, rates remain in relatively elevated territory, and other commonly traded rates rose. The average overnight repo rate gained around 2 basis points to 3.6869 percent, and the 14-day rose more than 12 basis points to 5.8204 percent.

China's money supply remains under pressure from multiple directions. The major factor at hand is the upcoming Lunar New Year holiday, which traditionally sees demand for cash spike as depositors withdraw money for gifts, travel and dining and financial markets close for a week. The issuance of 21-day repos, which do not mature until markets reopen following the holiday, helped offset this pressure.

Another, lesser factor is the impact the resumption of initial public offerings (IPOs) has had on the market. IPOs tend to sequester cash from the system for short periods of time during the subscription process, and when the IPO is big enough it can have trickle-down effects on the primary money market.

Stock markets continued to respond positively to the injection, however, with the CSI300 Index which tracks the largest companies in Shanghai and Shenzhen rising more than 2 percent in mid-morning trade.

$1 = 6.0505 Chinese yuan Editing by Jacqueline Wong

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