SHANGHAI; China's money rates inched up on Tuesday after the central bank drained funds through an open market operation, but the rise was limited because there was still enough liquidity in the banking system, traders said.
China's central bank pulled 60 billion yuan ($9.48 billion) from the money markets through 28-day bond repurchase agreements on Tuesday. With only 12 billion yuan in central bank bills and repos maturing this week, Tuesday's action guarantees a net drain for the week of at least 48 billion yuan.
"When money is ample, the drain in open market does not have a large impact on money conditions, so money rates are almost unchanged," said a dealer at a Chinese bank in Shanghai.
But he and other dealers said money rates could rebound slightly as the impact of a cut in banks' required reserve ratio (RRR) fades and banks begin to put aside funds to meet heightened month-end fund demand.
"Month-end factors could limit banks' willingness to lend money, so rates could rise slightly late this week or next," a Chinese bank dealer said.
The benchmark weighted-average seven-day bond repurchase rate inched up 2 basis points to 2.6933 percent by midday, but still hovered near a 13-month low.
The 14-day money rate gained 0.42 bps to 2.8038 percent at midday, while the overnight rate inched up 1.06 bps to 1.8309 percent.
Liquidity remained ample following China's 50 bps cut in required reserve ratios (RRR), which took effect on May 18 and injected around 420 billion yuan into the banking system.
Interest rates swaps (IRS) were little changed, amid expectations of further monetary easing after comments by Chinese Premier Wen Jiabao that the government will focus more on bolstering growth.
Benchmark five-year IRS rose by around 4 bps to around 3.0 percent, while one-year IRS rose to 2.78 percent from Monday's 2.69 percent.
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