February 23, 2012 / 5:51 AM / 8 years ago

China money rates soar on maturing repos, month-end caution

* 14-day repo surges by 141.55 bps
    * Reverse repos issued last Friday due to expire
    * Banks hoard cash in advance of month-end withdrawals
    * Effect of RRR cut will be modest and gradual

    By Gabriel Wildau	
    SHANGHAI, Feb 23 (Reuters) - The price of short-term
liquidity jumped in China's interbank market on Thursday, as
reverse repos conducted last week are set to expire on Friday.	
    The weighted-average 14-day bond repurchase rate
 surged by 141.55 basis points to 6.4274 at
midday, just shy of the level it reach on the day before the
Spring Festival holiday.	
    The price for benchmark seven-day repo loans
also strode higher by 42.10 basis points to 5.5238 at midday and
reached as high as 7.00 percent for individual transactions. 	
    The People's Bank of China (PBOC) injected cash into the
banking system last Friday via unannounced seven-day reverse
repos with selected banks in order to ease an acute liquidity
shortage, the China Securities Journal media previously
reported. Those repos are now set to expire.	
    In addition, despite the cut in banks' required reserve
ratio announced on Saturday, banks are showing their usual
caution about lending out funds near the months' end. 	
    Corporate depositors traditionally withdraw cash in this
period, and dealers believe the effect of RRR cut, which takes
effect on Friday, will appear only gradually.	
    In another indication of the funding squeeze affecting some
banks, an auction for six-month finance ministry deposits on
Thursday morning yielded an interest rate of 6.8 percent, nearly
twice as high as the benchmark one-year deposit rate of 3.5
percent for corporate and household deposits. 	
    "The pressure on banks to attract deposits is pretty heavy
because of the loan-to-deposit ratio," said a dealer at a
foreign bank in Shanghai.	
    Dealers still expect rates to fall beginning on Friday, when
the cut in the required reserve ratio takes effect. But the fall
is likely to be modest. The overnight rate should break below 5
percent next week, one trader predicted. But the seven-day rate
will remain above 5 percent, she said. 	
    	
                                     Current  Prev close  Change	
                                          (pct)           (bps) 	
7-day repo         5.5238     5.1028       +42.10	
7-day SHIBOR           5.4850     5.0317       +45.33	
 Note: Repo rate is weighted average.
0 : 0
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