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China money rates rebound slightly, open market operation eyed

china-flagSHANGHAI: China's money rates rose slightly on Monday, rebounding from a six-week low, on expectation that the central bank may drain funds through open market operations again this week.


The benchmark weighted-average seven-day bond repurchase rate edged up 4.16 basis points to 2.7199 percent by midday, up from Friday's close of 2.6783 percent.


The 14-day repo rate fell to 3.3930 percent from 3.4021 percent, and the overnight rate rose to 2.2526 percent from 2.1963 percent.


"Conditions haven't changed much and funds are still ample, but people are cautious over the open market operations (which could drain funds from market)," said a dealer at a Chinese commercial bank in Shanghai.


The PBOC drained 221 billion yuan ($35.36 billion) from money markets last week, the biggest weekly drain of this year. Maturing bills and reverse repos will drain a net 386 billion yuan from the banking system this week.


Some traders still expect money rates to hover around low levels, as they believe capital inflows into China may have picked up after the US Federal Reserve launched a third around of quantitative easing (QE3) in the middle of September.


A strong yuan should increase the incentive for firms to sell dollars for yuan, boosting the Chinese currency's liquidity as banks issue yuan in exchange for dollars sold by corporates, analysts said.


The yuan has hit a series of record highs this month.


Copyright Reuters, 2012


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