December 28, 2017 / 3:30 AM / a year ago

China's 14-day money rates jump to 4-year high on demand for year-end cash

SHANGHAI, Dec 28 (Reuters) - China’s central bank has held back from injecting cash into the money market for five straight trading days, pushing a key money market rate to its highest level in four years as financial institutions look for funds through the year-end.

The People’s Bank of China (PBOC) has refrained from injecting fresh funds via its open market operations since last Friday, citing liquidity in the banking system as “relatively high”.

“With the increase of year-end fiscal expenditure, total liquidity level in the banking system will continue to be pushed higher even after countering maturing reverse repos,” The PBOC said in an online statement on Thursday.

Maturing reverse repos have drained a total of 240 billion yuan ($36.65 billion) so far this week.

The benchmark 14-day repo, considered one of the best indicators of general liquidity, opened at 10.00 percent and surged to a high of 12.00 percent at one point on Thursday, a level that was last seen in late December 2013.

The volume-weighted average rate for the 14-day repo was 5.9773 percent, around 75 basis points higher than the previous close of 5.2306 percent on Wednesday, which was the highest since December 2014.

The volume-weighted average seven-day repo rate was 2.7590 percent.

Cash conditions usually get tight at the end of the quarter and at the end of the year as financial institutions have to meet regulatory requirements.

And households and companies usually need more cash at the year-end, which also drains funds out of the market.

Some traders said the overall liquidity level was ample, attributing the surge in money rates to a structural imbalance between different types of institutions.

Big banks have stronger capacity to absorb deposits and they are among the first to receive funding from the central bank in open market operations, while smaller lenders and non-bank financial institutions have to heavily rely on the interbank money market for borrowing.

A trader at a Chinese bank in Shanghai said big banks were reluctant to lend funds to smaller peers at the year-end. Banks were also unwilling to offer a helping hand to non-bank financial institutions as they have to face a quarterly central bank health check due by the end of December.

The seven-day repo rate on the Shanghai Stock Exchange , which reflects mainly the borrowing cost of non-bank financial institutions such as brokerages and trust firms, surged to 13.85 percent at one point on Thursday morning. ($1 = 6.5490 Chinese yuan) (Reporting by Winni Zhou and Brenda Goh; Editing by Eric Meijer)

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