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China's primary money rates eased for the week as liquidity conditions improved following the month-end peak demand for cash and even as the central bank drained funds. 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, was 2.7725 percent on Friday, more than 8 basis points lower than the previous week's closing average rate at 2.8543 percent.
Traders said cash conditions in the money market were balanced with a tightening bias. One trader at a Chinese bank said although seasonal factors had faded, the central bank's unwillingness to inject net cash into the market this week had made market participants cautious.
For the week, the People's Bank of China (PBOC) drained a net 40 billion yuan ($5.95 billion) from the market via its reverse bond repurchase agreements, compared with a net injection of 280 billion yuan a week earlier. Lu Zhengwei, chief economist at Industrial Bank in Shanghai, said the PBOC's switch to net cash drain via open market operations did not mean a change in monetary policy.
Banks usually shore up their cash positions at the end of the month to meet regulatory requirements, which drains funds from the banking system. Cash conditions in the money market traditionally get tight during that period, but they ease at the beginning of the month.

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