CHINA’S interbank lending rates jumped yesterday on worries over an impending withdrawal of liquidity, even as the central bank has held off injecting funds through open market operations.

    China’s benchmark interbank lending rate rose to its highest since the cash crunch in late June that roiled global markets. Traders said large banks, which are typically the main suppliers of liquidity to the market, were not offering loans.

    The seven-day bond repurchase rate hit 6.11 percent on a weighted-average basis, up from 4.78 percent Tuesday and the highest level since June 27.

    “Supply is especially small, at every price. Even adding 100 basis points [to yesterday’s price], competition is fierce. I’ll have to continue borrowing this afternoon,” said a money market trader at a commercial bank in eastern China.

    Demand for cash in the country’s financial system typically surges before the end of each year as banks scramble for funds to meet regulatory requirements on capital and as companies and individuals start a holiday-induced spending spree.

    A severe cash crunch in late June sent rates on individual repo loans to as high as 30 percent, with panic spilling over to Chinese and global equity markets.

    Traders say the maturity of 40 billion yuan (US$6.59 billion) in fiscal deposits today has reduced funds available for lending. In addition, the People’s Bank of China has declined to inject funds into the banking system for four consecutive regularly scheduled sessions going back to Dec. 5, providing no relief to the market.

    In the swaps market, one-year interest rate swaps based on the seven-day repo rate, which typically reflect liquidity conditions, were at 4.88 percent, the highest level since June 20.

    The Ministry of Finance periodically auctions government funds to commercial banks, who bid for the right to hold the cash. These operations add to interbank liquidity until the deposits mature and flow back into the central bank, withdrawing liquidity.

    But the ministry has already completed its final deposit auction for 2013, meaning that no new liquidity will enter the market via this channel.

    Traders are focused on whether the central bank will inject cash via reverse repos at today’s regularly scheduled open market operations. (SD-Agencies)