China cash rates jump on liquidity worries
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By Gabriel Wildau
SHANGHAI, Dec 18 (Reuters) - China's interbank lending rates
jumped on Wednesday on worries over an impending withdrawal of
liquidity, even as the central bank has held off injecting funds
through open market operations.
China's benchmark interbank lending rate rose to its highest
since the cash crunch in late June that roiled global markets.
Traders said large banks, which are typically the main suppliers
of liquidity to the market, were not offering loans.
The seven-day bond repurchase rate hit 6.11
percent on a weighted-average basis, up from 4.78 percent on
Tuesday and the highest level since June 27.
'Supply is especially small, at every price. Even adding 100
basis points (to yesterday's price), competition is fierce. I'll
have to continue borrowing this afternoon,' said a money market
trader at a commercial bank in east China.
A severe cash crunch in late June sent rates on individual
repo loans to as high as 30 percent, with panic spilling over to
Chinese and global equity markets. The Shanghai Composite Index was up 0.2 percent in early afternoon trade on
Wednesday.
Money market traders say the maturity of 40 billion yuan
worth of fiscal deposits on Thursday has reduced funds available
for lending. In addition, the People's Bank of China has
declined to inject funds into the banking system for four
consecutive regularly scheduled sessions going back to Dec. 5,
providing no relief to the market.
In the swaps market, one-year interest rate swaps based on
the seven-day repo rate, which typically reflect liquidity
conditions, were at 4.88 percent, the highest level since June
20.
The Ministry of Finance periodically auctions government
funds to commercial banks, who bid for the right to hold the
cash. These operations add to interbank liquidity until the
deposits mature and flow back into the central bank, withdrawing
liquidity.
But the ministry has already completed its final deposit
auction for 2013, meaning that no new liquidity will enter the
market via this channel.
Traders are focused on whether the central bank will inject
cash via reverse repos at Thursday's regularly scheduled open
market operations.
'Tomorrow the pressure will be heavy. If there are no
reverse repos, it will be bad,' said a money trader in Shanghai.
Unlike in June, the rise in rates on Wednesday was largely
confined to the seven-day tenor.
The overnight repo rate was at 3.66 percent on
Wednesday, little changed from 3.60 percent on Tuesday. The
14-day repo rate averaged 5.49 percent, up from 5.32 percent on
Tuesday, but below the 5.88 percent average on Dec. 3.
(Additional reporting by Helen Ding; Editing by Jacqueline
Wong)
(([email protected])(+86 21 6104-1783)(Reuters
Messaging: [email protected]))
Keywords: MARKETS CHINA BONDS/
(China FX and money market guide: China debt market guide: SHIBOR rates: Reports on central bank open market operations: New Chinese debt issues: Prices for central bank bills, treasury bonds and sovereign bonds: Overview of China financial market data:)
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