China primary money rates slip this week, but Shanghai interbank ones rise

The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity in China, closed at 2.9136 percent on Friday, more than eight basis points lower than the previous week's closing average rate at 2.9981 percent.

Traders said there were few signs of liquidity stress this week after central bank injections, though market expectations for tightening cash conditions towards the end of June have driven interest rates for longer-term loans higher.

The Shanghai Interbank Offered Rate (SHIBOR) for one-month tenor stood at 4.5854 percent on Friday, its highest level since April 2015. The three-month rate also rose to a more than two-year high.

The one-year SHIBOR rate, which was lower than China's benchmark one-year lending rate until late May, has continued to rise and climbed to 4.4116 percent on Friday, its highest since May 2015. The one-year benchmark was 4.35 percent.

A Shanghai-based trader at a Chinese bank said monthly payments of a regulatory tax will begin next week, while the central bank's quarterly Macro Prudential Assessment (MPA) will tighten liquidity further.

June traditionally has tight liquidity. In 2013, a China cash crunch that spooked global markets occurred in late June.

The People's Bank of China injected 498 billion yuan ($73.27 billion) into the financial system through its medium-term lending facility (MLF) loans on Tuesday, more than offsetting the amount of maturing loans this month.

Three batches of earlier MLF loans totaling 431.3 billion yuan are due to mature in June, according to Reuters calculations based on official data from the central bank.

Market players did not expect the central bank to renew a batch of maturing six-month MLF loans with a value of 207 billion yuan next Friday, but anticipated the PBOC would raise

its interest rates soon, with expectations that the US Federal Reserve interest rate hike next week.

In March, after the US Fed raised interest rates, the PBOC lifted short-term interest rates in what economists said was a bid to stave off capital outflows and keep the yuan stable.

The central bank has injected 974.2 billion yuan on a net basis through the MLF loans so far this year, compared with a net drain of 775 billion yuan via open market operations during the same period, according to Reuters calculations based on the official data from the PBOC.

Nearly 200 billion yuan of accumulated net cash injection with longer maturity into the country's financial system this year clearly showed that the authorities have been walking a tightrope between maintaining overall liquidity in the market, while deleveraging and reducing risks without hurting the real economy.

In the open market operations, the PBOC drained a net 10 billion yuan from the money market this week, compared with a net injection of 30 billion yuan a week earlier.