Wednesday, 24 October 2012 13:35
SHANGHAI: China's money rates jumped on Wednesday, with dealers reporting tightening money conditions in the market as banks and corporates set aside money for pending income taxes.
"Liquidity is really tight today. Big banks are not willing to lend money as they face strong pressures to provide capital for companies' tax payments," said a senior dealer at a Chinese state-owned bank in Shanghai.
Enterprises usually use commercial deposits to pay taxes, which drains funds from the banking system.
Due to tightening liquidity, several traders said they expect the central bank to inject a large amount of funds into the market via open market operations on Thursday.
The central bank injected 91 billion yuan ($14.55 billion) into the market via seven- and 28-day reverse bond repurchase agreements on Tuesday, doing little to offset the 386 billion yuan due to drain from money markets this week through a combination of maturing repos, bills and reverse repos.