China main money rate up, market awaits next bank reserve cut

Fri Jun 29, 2012 7:05am EDT
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By Lu Jianxin and John Ruwitch

SHANGHAI (Reuters) - China's main short-term lending rate rose 14 basis points on Friday as banks hoarded money to prepare for extra bank reserve payments due early next month while the market awaited a cut in bank reserve requirements.

The benchmark seven-day weighted-average bond repurchase rate rose to 4.1240 percent at midday from Thursday's close of 3.9832 percent.

The shortest overnight repo rate rose to 3.6038 percent from 3.5666 percent but tenors above 14-days fell on expectations that liquidity conditions may improve after July 5, traders said.

The market has recently suffered a liquidity crunch. It stemmed from the need by banks for more money to meet half-year regulatory requirements, such as loan-to-deposit ratios, and a large initial public offering that froze 31 billion yuan ($4.9 billion) from the market this week.

Also, Chinese banks are required to adjust their deposit reserves on the 5th, 15th and 25th of each month.

Traders said deposits recently have been rising sharply as banks are succeeding in attracting more savers to enhance their half-year financial statements. Higher deposits will increase the amount that banks must set aside as reserve payments on July 5, they said.

"Even major banks appear to have limited money to lend, keeping short-term funding costs at high levels," said a dealer at a Chinese commercial bank in Shanghai.

"But the central bank is acting to help the market, and the market expects it to cut bank reserve requirements in July," the dealer added.   Continued...

A bank clerk counts Chinese yuan banknotes at a branch of Industrial and Commercial Bank of China in Huaibei, Anhui province, June 8, 2012. REUTERS/Stringer