China�s money rates steady as c Bank adds more cash

SHANGHAI, Oct 11: China�s key money rate held steady on Thursday, with traders saying interbank liquidity was now quite loose after a third consecutive week of fund injections by the central bank.The central bank injected a net 164 billion yuan ($26.10 billion) this week, compared to the record 365 billion yuan in the last trading week before the week-long October� holiday.Uncertainty looms over the market, however, due to 704 billion yuan in reverse repos which will mature over the next two weeks, causing a drain in liquidity.Absent further net fund injections, traders say conditions could tighten near the end of next week, as corporate tax payments based on third-quarter earnings come due on Oct. 15.�With the impact of tax payments, the next two weeks will be rather tight, so I think the central bank will have to keep injecting funds,� said an analyst at a large state-owned bank in Shanghai.While the central bank will likely to be forced to at least roll over the maturing reverse repos, it could reduce the volume of its net injections.�If things stay this loose, rates could fall further. But in that case I wouldn�t rule out the bank cutting back on reverse repos,� said a trader at a major state-owned bank in Beijing.After plunging 60 basis points on Wednesday, the benchmark weighted-average seven-day bond repurchase rate edged higher to 3.1846 percent around midday, up 2 bps from Wednesday�s close but still well below its close of 3.8262 percent on Monday.The overnight repo rate extended its fall, dropping 19.84 basis points to 2.4481 around midday, its lowest level in a month.Traders and analysts are divided about whether the increased used of reverse repos since June marks the start of a long-term shift away from reliance on quantitative tools such as the reserve requirement ratio (RRR) to manage� liquidity.An alternate view is that the reliance on open market operations is a stop-gap ahead of the Communist Party Congress that opens on Nov. 8. Traders say the PBOC wants to avoid taking dramatic policy steps in the run-up the� Congress.�The political element is pretty important,� said the analyst, referring to the central bank�s possible motivation for relying on reverse repos rather than an RRR cut.�Without the leadership change, the chances of such a big move in monetary policy change would be less. They�re waiting for new leadership to set the guiding policy principles before considering any large-scale adjustments to monetary policy.�(AGENCIES)