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China's money rates steady as c.bank adds more cash

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* China c.bank injects funds for third straight week

* Conditions now very loose, but uncertainty lies ahead

* Maturing repos will drain massive funds this month

* Political factors delay cut in required reserve ratio

SHANGHAI, Oct 11 (Reuters) - China's key money rate heldsteady on Thursday, with traders saying interbank liquidity wasnow quite loose after a third consecutive week of fundinjections by the central bank.

The central bank injected a net 164 billion yuan ($26.10billion) this week, compared to the record 365 billion yuan inthe last trading week before the week-long October holiday.

Uncertainty looms over the market, however, due to 704billion yuan in reverse repos which will mature over the nexttwo weeks, causing a drain in liquidity.

Absent further net fund injections, traders say conditionscould tighten near the end of next week, as corporate taxpayments based on third-quarter earnings come due on Oct. 15.

"With the impact of tax payments, the next two weeks will berather tight, so I think the central bank will have to keepinjecting funds," said an analyst at a large state-owned bank inShanghai.

While the central bank will likely to be forced to at leastroll over the maturing reverse repos, it could reduce the volumeof its net injections.

"If things stay this loose, rates could fall further. But inthat case I wouldn't rule out the bank cutting back on reverserepos," said a trader at a major state-owned bank in Beijing.

After plunging 60 basis points on Wednesday, the benchmarkweighted-average seven-day bond repurchase rate

edged higher to 3.1846 percent around midday, up 2 bps fromWednesday's close but still well below its close of 3.8262percent on Monday.

The overnight repo rate

extended its fall,dropping 19.84 basis points to 2.4481 around midday, its lowestlevel in a month.

Traders and analysts are divided about whether the increasedused of reverse repos since June marks the start of a long-termshift away from reliance on quantitative tools such as thereserve requirement ratio (RRR) to manage liquidity.

An alternate view is that the reliance on open marketoperations is a stop-gap ahead of the Communist Party Congressthat opens on Nov. 8. Traders say the PBOC wants to avoid takingdramatic policy steps in the run-up the Congress.

"The political element is pretty important," said theanalyst, referring to the central bank's possible motivation forrelying on reverse repos rather than an RRR cut.

"Without the leadership change, the chances of such a bigmove in monetary policy change would be less. They're waitingfor new leadership to set the guiding policy principles beforeconsidering any large-scale adjustments to monetary policy."

Current Prev close Change(pct) (bps)7-day repo3.1846 3.1646 + 2.007-day SHIBOR3.1608 3.1600 + 0.08

Note: Repo rate is weighted average.

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($1 = 6.2833 Chinese yuan)(Editing by Kim Coghill)

Keywords: MARKETS CHINA BONDS/

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