Most Chinese money rates fall as regulators inject money
* Govt appears to have learned lesson not to strangle liquidity
* Finance ministry to auction 100 bln yuan deposits
* Compared with 40 bln yuan per month in April to June
* PBOC ends week letting 46 bln yuan flow into market
SHANGHAI, July 5 (Reuters) - China's money market rates mostly fell on Friday as regulators signalled they will inject funds into an interbank market still recovering from a massive cash crunch at the end of June that sparked fears of a banking crisis. The weighted average of the benchmark seven-day bond repurchase rate fell 15 basis points (bps) to 3.80 percent, returning to its normal range of between 3-4 percent. The 14-day repo rate dropped 16 bps to 4.28 percent, although the overnight repo rate edged up slightly by 7 bps to 3.38 percent as banks set aside additional funds to meet the required reserve ratio (RRR). China's central bank allowed short-term borrowing costs to spike to close to 30 percent on June 20, sending a blunt but effective message to overstretched banks that it was determined to bring risky lending under control. Policymakers later issued a flurry of reassurances that there is ample liquidity in the financial system, but the nasty squeeze has already created widespread worries over the health of the world's second-largest economy and China's financial system. "It appears regulators are stepping up injecting funds into the market," said a trader at a Chinese commercial bank in Shanghai. "Positive official attitudes towards ensuring liquidity in the banking system have helped ease jitters over supply and effectively terminated the squeeze." China's finance ministry will auction a total of 100 billion yuan ($16.31 billion) of six-month and three-month deposits to commercial banks on July 11 and 18, the ministry said on Thursday. That compares with a monthly average of 40 billion yuan of deposits the ministry auctioned from April to June. Regulators have increasing used government revenues deposited in Chinese banks as a monetary policy tool since last year. China's central bank conducted no operations in the open market this week, resulting in 46 billion yuan from maturing instruments flowing into the market. However, traders said the recent liquidity squeeze in the money markets signalled that the regulatory offensive against aggressive lending practices would nevertheless be intensified going forward.
Current Prev close Change
(pct) (bps) 7-day repo 3.8047 3.9550 -15.03 7-day SHIBOR 3.8160 3.9380 -12.20
Note: Repo rate is weighted average.
MARKET DRIVERS - Tighter interbank regulation seen after cash squeeze
- China reform push means June turmoil may be just the beginning - China opens new front in war as yuan speculation distorts export data - China seeks to curb speculative flows without monetary tightening - Markets spin on liquidity switches - Non-bank financing to rise in 2013
DATA POINTS - External liquidity tracker: Collapse in FX purchases hurts liquidity in May http://link.reuters.com/pem75t - Impact of maturing central bank bills and repos GRAPHIC: http://link.reuters.com/pem75t - Chinese government bond curve flattens on liquidity squeeze, growth concerns GRAPHIC: http://link.reuters.com/jyr95t - China's interest-rate swap curve is inverted on severe liquidity squeeze GRAPHIC: http://link.reuters.com/ryr95t - China corporate bond spreads have narrowed slightly GRAPHIC: http://link.reuters.com/bas95t - Hot money tracker: Hot money inflows have returned in 2013, boosting liquidity GRAPHIC: http://link.reuters.com/saz74t
(Editing by Kim Coghill)