China's money rates continued to rise on Thursday, despite a sizeable cash injection by the People's Bank of China, as financial institutions hoarded cash prior to the upcoming New Year holiday week.
Cash demand typically rises at year-end, as households and firms draw down deposits to pay for bonuses and holiday shopping.
Dealers said demand in the key seven-day repo market was low, citing caution over a recurring payment of reserve requirement ratio (RRR) funds falling due on Jan. 5.
"No one wants the seven-day tenor as its maturity falls on the same day as the deadline for RRR payment," said a dealer at a Chinese commercial bank in Beijing.
Chinese money markets are closed January 1-3, leaving only Monday and Friday available for trade. Because regularly scheduled open-market operations occur on Tuesdays and Thursdays, there is a likelihood that the central bank will not move to inject any liquidity next week, resulting in a net drain of 106 billion yuan as previously issued reverse repos mature.
The PBOC only injected 5 billion yuan ($802 million) into the money market through seven-day reverse bond repurchase agreements on Thursday. It injected 135 billion yuan in 14-day reverse repos on Thursday, which will mature in 2013.
The benchmark weighted-average seven-day bond repurchase rate rose to 4.0969 percent from 3.8108 percent at close on Wednesday.
The 14-day repo rate edged up to 4.6289 percent from 4.4533 percent, and the one- day repo rate dipped to 2.2921 percent from 2.2940 percent.