October 22, 2012 / 5:51 AM / in 5 years

China money rates rebound slightly, open market operation eyed

* Benchmark seven-day repo rate rises 4 bps
    * Maturing instruments to drain net 386 billion yuan this
    * Strong yuan could boost interbank liquidity

    By Chen Yixin and Gabriel Wildau
    SHANGHAI, Oct 22 (Reuters) - China's money rates rose
slightly on Monday, rebounding from a six-week low, on
expectation that the central bank may drain funds through open
market operations again this week.
    The benchmark weighted-average seven-day bond repurchase
rate edged up 4.16 basis points to 2.7199 percent
by midday, up from Friday's close of 2.6783 percent.
    The 14-day repo rate fell to 3.3930 percent
from 3.4021 percent, and the overnight rate rose
to 2.2526 percent from 2.1963 percent. 
    "Conditions haven't changed much and funds are still ample,
but people are cautious over the open market operations (which
could drain funds from market)," said a dealer at a Chinese
commercial bank in Shanghai.
    The PBOC drained 221 billion yuan ($35.36 billion) from
money markets last week, the biggest weekly drain of this year.
Maturing bills and reverse repos will drain a net 386 billion
yuan from the banking system this week.
    Some traders still expect money rates to hover around low
levels, as they believe capital inflows into China may have
picked up after the U.S. Federal Reserve launched a third around
of quantitative easing (QE3) in the middle of September.
     A strong yuan should increase the incentive for firms to
sell dollars for yuan, boosting the Chinese currency's liquidity
as banks issue yuan in exchange for dollars sold by corporates,
analysts said. 
    The yuan has hit a series of record highs this month. 
                                 Current  Prev close  Change
                                       (pct)           (bps)  
7-day repo         2.7199     2.6783    + 4.16
7-day SHIBOR           2.7075     2.6868    + 2.07  
 Note: Repo rate is weighted average.
($1 = 6.2503 Chinese yuan)

 (Editing by Sanjeev Miglani)

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