Tue Jun 26, 2012 11:35am IST
* Seven-day repo rate up 10 bps, near 4-month high * PBOC uses reverse repos to inject 95 bln yuan * 50 billion yuan PBOC repos maturing this week * Liquidity squeeze to run well into next month By Lu Jianxin and Pete Sweeney SHANGHAI, June 26 (Reuters) - China's short-term lending rates were up on Tuesday, hit by a liquidity squeeze as banks demanded funds ahead of the end of the first half and brokerages and fund managers needed cash to subscribe to a major initial public offering (IPO). The People's Bank of China (PBOC) moved to relieve the squeeze in the morning, injecting 95 billion yuan ($14.9 billion) into the money market through 14-day reverse bond repurchase agreements (reverse repos) in its regular open market operations on Tuesday. The central bank also refrained from conducting regular 28-day repos on Tuesday, resulting in the automatic injection of an additional 50 billion yuan for the day. Another 23 billion yuan worth of bills and repos are set to mature on Thursday. The PBOC injected a net 55 billion yuan into the market last week through normal open market operations, its largest net injection since April. "Had not the PBOC injected so much money into the system, money market rates would have jumped (further)," a dealer at an Asian bank in Shanghai said. "Still, the liquidity squeeze is unlikely to ease much in the first half of July partly because banks have to pay extra reserves for an increase of deposits by the end of June." The benchmark seven-day weighted bond repurchase rate was trading at 4.2992 percent at midday, edging up from 4.1999 percent at Monday's close. It was within an arm's reach of a four-month high of 4.3392 percent hit late last week. The 14-day rate inched up to 4.7571 percent from Monday's 4.7406 percent, but with its rise capped by the PBOC's 14-day reverse repos, which traders said reflected the central bank's view that liquidity conditions would not improve much in the next two weeks. HIGH DEMAND Chinese banks are required to adjust their deposit reserves on the 5th, 15th and 25th of each month. They also need more money to meet regulatory requirements, such as loan-to-deposit ratios, by the end of the half of a year. Traders reported banks' deposit rates have been rising sharply recently as banks try to attract more savers to polish their half-year financial statements. This increases banks' obligation to set aside reserve payments for July 5, they said. "Even major state-owned banks are reluctant to lend recently as they are setting aside extra reserves for rising deposits," said a trader at a Chinese commercial bank in Shanghai. China's biggest four state-owned banks, led by the Industrial and Commercial Bank of China, account for more than 50 percent of lending on the money market. Institutions - mainly securities houses and fund management firms - are also preparing money to participate in a nearly $650 million IPO later this week, which traders said could briefly lock up hundreds of billions of yuan for subscriptions. CITIC Heavy Industries Co, China's fourth-biggest maker of heavy machinery, is launching a 4.13 billion yuan IPO on the Shanghai Stock Exchange, the second largest of the year. Institutional and retail subscriptions will open this week. China's IPOs typically attract huge subscriptions because IPOs often jump on debut, encouraging punters to speculate heavily on newcomers. As a result, large-scale offerings frequently cause short-term volatility in the country's money market. Current Prev close Change (pct) (bps) 7-day repo 4.2992 4.1999 + 9.93 7-day SHIBOR 4.2800 4.2175 + 6.25 Note: Repo rate is weighted average. ($1 = 6.365 Chinese yuan)
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