December 5, 2012 / 5:06 AM / 5 years ago

China's money rates fall on ample funds, despite RRR payment

* Benchmark 7-day repo rate falls 8 bps to 2.80 pct
    * Minimal impact from RRR payments
    * Fiscal deposits, forex purchase support liquidity
    * poised for fourth straight week of net fund drain

    By Chen Yixin and Gabriel Wildau
    SHANGHAI, Dec 5 (Reuters) - China's money rates fell
slightly on Wednesday, as ample liquidity offset the impact of
required reserve ratio (RRR) payments, dealers said.
    Banks must adjust their reserve balances at the central bank
on the 5th, 15th and 25th in order to meet the RRR, with the
amount of the payment or refund dependent on changes in their
customer deposit balances. An increase in deposits requires
banks to add to their reserves.
    The benchmark weighted-average seven-day bond repurchase
rate fell 7.69 basis points to 2.8012 percent from
2.8781 percent at the close on Tuesday.
    The 14-day repo rate fell to 3.2086 percent
from 3.3270 percent, and the one-day repo rate was
little changed at 2.2564 percent from 2.2563 percent.
    Dealers said the ample liquidity was due to the injection
from fiscal deposits and central bank purchase of foreign
exchange inflows.
    A Reuters analysis shows that the Ministry of Finance is
likely to pump a record-high 1.6 trillion yuan ($256.90
billion)into the system in the last two months of this year
through the transfer of tax revenues out of the central bank and
into commercial banks. 
    Meanwhile, the recent rally in the yuan has prompted
corporates to increase their sales of dollars to the commercial
banks, which typically pass them on to the central bank. Central
bank purchases of forex increase expand the base money supply,
increasing liquidity.
    Market players expect the People's Bank of China (PBOC)
could conduct a small net drain of funds through open market
operations this week, but the impact on interbank rates will
likely be minimal.
    The PBOC injected a 97 billion yuan ($15.58 billion) into
the market through reverse repos on Tuesday, against a net drain
of 203 billion yuan scheduled this week through maturing bills,
repos, and reverse repos.
    That means any injection less than 106 billion at the PBOC's
regular Thursday auction will cause a net drain for the week.
The central bank has conducted net drains for three straight
weeks, including a 40 billion yuan net drain last week.    
                                     Current  Prev close  Change
                                       (pct)           (bps)  
7-day repo         2.8012     2.8781    - 7.69
7-day SHIBOR           2.8000     2.8830    - 8.30 
 Note: Repo rate is weighted average.
($1 = 6.2256 Chinese yuan)

 (Editing by Kim Coghill)

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