China's primary money market rates moved higher on Friday, in spite of a central bank liquidity injection, as cash conditions tightened ahead of business tax payments and the week brought a net liquidity drain. 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 2.9438 percent.
That was 20.5 basis points higher than the closing average rate the previous Friday, and up more than 4 basis points from one day earlier. The seven-day Shanghai Interbank Offered Rate (SHIBOR) rose to 2.8455 percent, up 2 basis points from last Friday's close. The People's Bank of China (PBOC) drained a net 230 billion yuan ($34.64 billion) from the market this week, following a drain of 110 billion yuan a week earlier.
However, an 80 billion yuan injection on Friday helped to keep conditions from becoming excessively tight, traders said. "Liquidity conditions were very tight Friday morning, but we saw a turn for the better just before noon," said a Shanghai-based trader at a regional bank. "We had a net injection for the day, and in the afternoon bigger banks came out to lend to their peers."
The one-day or overnight rate stood at 2.7381 percent and the 14-day repo stood at 3.9336 percent, up 18.9 basis points on the week. The tightness in money markets this week came as yields on Chinese government bonds remained near three-year highs, and as companies prepare to pay business taxes that start coming due in mid-month.