SHANGHAI: China's money rates fell slightly on Tuesday after the People's Bank of China proactively injected funds into money markets for the first time since February, easing fears of another credit crunch like the one which panicked markets last month.
China's central bank injected 17 billion yuan ($2.77 billion) into the money markets through seven-day reverse bond repurchase agreements on Tuesday, the first time it has engaged in open market operations since June 20, and the first time it has issued reverse repos - which inject funds - since early February.
But the new cash was priced high, with the bank setting the official seven-day reverse repo rate at 4.4 percent, much higher than the last official guidance rate of 3.35 percent,
"The central bank may be using the reverse repo rate to clarify its attitude toward the market," said a dealer at a state-owned bank in Beijing.
Dealers say the bank is using the interbank market as a way to signal financial institutions to cut back on risky shadow banking practices that has seen investment flowing into speculative activity instead of the real economy in 2013.
Despite the high guidance rate, the money markets still had room to relax, and did so, as fears of another cash crunch receded.
Some rates reached as high as 30 percent in intra-day trade in late June.
The benchmark weighted-average seven-day bond repurchase rate fell slightly to 4.9848 percent by midday, down 13 basis points from the previous close of 5.1165 percent.
The overnight rate dipped to 3.6574 percent from 3.7776 percent, while the 14-day tenor was down to 5.3562 percent from 5.5183 percent.
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