September 18, 2014 / 3:27 AM / 3 years ago

China money market rates drop, traders suspect large cash injection

SHANGHAI, Sept 18 (Reuters) - China’s money market rates fell on Thursday, with improving liquidity seen in the financial system after reports the central bank was injecting $81 billion into the country’s top banks to shore up the economy.

The People’s Bank of China (PBOC) has not confirmed nor denied media reports on Wednesday it was pumping 100 billion yuan each into the top five banks via a short-term lending facility, known as a Standing Lending Facility (SLF), but traders said the drop in rates was probably due to large cash injections.

“Our bank is busy this morning lending with so much money in the market now,” said one trader at a Chinese commercial bank in Shanghai.

“I suspect that the reported SLFs have at least partially been done, and the money is already in the market,” he said, referring to the lending facility.

A traders at a foreign bank in Shanghai said that liquidity has been improving since Wednesday afternoon.

The weighted average of the benchmark seven-day bond repurchase agreement was quoted at 3.29 percent, down from 3.38 percent at the close on Wednesday.

The weighted average of the shortest one-day repo rate slipped 2 basis points to 2.82 percent, but the 14-day repo rate, which covers the upcoming peak of fund demand at the end of the quarter, rose 6 basis points to 3.64 percent.

The reported move by the PBOC helped support global shares and commodities on Wednesday as investors took it as a sign that Beijing was stepping up its efforts to underpin the economy which is showing signs of slowing growth.

In open market operations on Thursday, the PBOC lowered the yield for its 14-day repos by 20 basis points to 3.5 percent from Tuesday’s 3.7 percent - another sign the central bank is trying to keep market interest rates relatively low. It has kept the yield on the 14-day repos unchanged since late July.

The central bank drained 10 billion yuan from the money markets through 14-day repos on Thursday, but for the week, it will inject a net 8 billion yuan versus a net drain of 5 billion yuan last week.

Traders said rates would have limited room to fall sharply, however, because they were already at low levels. There is also expected pent-up demand for cash at the quarter-end and from a slew of initial public offerings.

$1=6.1438 Yuan Editing by Jacqueline Wong

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