December 27, 2017 / 9:59 AM / in a year

China short-term money rates jump, small lenders scramble for year-end cash

SHANGHAI, Dec 27 (Reuters) - China’s money market rates spiked on Wednesday, with the 14-day repo rate jumping to a four-year high of 10 percent at one point as smaller institutions scrambled to secure funding that extends into the new year.

Liquidity typically tightens at the end of each quarter as banks focus on closing their books and meeting regulatory requirements.

Still, some traders said the Chinese government’s deleveraging drive and the central bank’s tighter policy bias has exacerbated the end-of-quarter squeeze this time.

“Many banks compete for cash at year-end to meet annual targets, and the size of their deposits determine how much they can lend in the new year,” said Xia Haojie, an analyst in Shenzhen for brokerage Guosen Futures.

The volume-weighted average rate of 14-day repo in China’s interbank market closed on Wednesday at a nine-month high of 4.9414 points.

The rate for seven-day cash touched 12 percent, the highest since mid-2013, although on a volume-adjusted basis, the rate averaged 2.9317 percent.

The Shanghai Interbank Offered Rate (Shibor) - which some view as the market’s benchmark - has been climbing rapidly over the past weeks. On Wednesday, one-month Shibor reached 4.93 percent, the highest level since April 2015.

And 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 14.69 percent, the highest level in three months, and closed at 10.8 percent.

The central bank has kept the funding tap tight, saying on Wednesday it would skip open market operations for a fourth straight trading day as system liquidity was “relatively high”.

Meng Xia, a trader at Tianjin Rural Commercial Bank, said liquidity near year-end has been tighter than she expected, and expressed disappointment the People’s Bank of China (PBOC) did not inject more cash into the banking system.

“You cannot raise money unless you offer very high interest rates, and those institutions with money are holding the cash, hoping rates can go higher.”

Her bank is offering a 5.9 percent yield for 14-day deposits but has failed to attract interest as the price is “too uncompetitive”, she said, adding that some peers are offering 14 percent.

“Beneath the tranquility of the sea surface, there are turbulent undercurrents,” said Meng. (Reporting by Samuel Shen and Brenda Goh; Editing by John Mair and Richard Borsuk)

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