Liquidity still tight in interbank lending market

Liquidity remained tight in China's interbank lending market Monday, despite an injection of more than 300 billion yuan ($49.42 billion) of fresh funds last week by the country's central bank.

The benchmark seven-day bond repurchase rate climbed 90 basis points to 8.93 percent on a weighted average basis by close of trading Monday, up from 8.21 percent on Friday.

The Shanghai interbank offered rate (Shibor). which measures the cost for banks to borrow from each other, has also posted dramatic spikes, with the two-week Shibor gaining the most on Monday - it rose by 124.3 basis points to 8.24 percent.

The seven-day Shibor posted the biggest surge last week, soaring from 4.35 percent on December 16 to 8.84 percent Monday, according to the National Interbank Funding Center.

The People's Bank of China (PBOC). the central bank, said in a statement posted after trading closed Friday that it had injected cash into the market via its Short-term Liquidity Operations for three consecutive days.

The PBOC said in the statement that it had advised major commercial banks to "appropriately adjust their asset to liability ratio, and be more forward-looking and scientific when managing their liquidity."

Li Bo, Shanghai-based chief investment consultant at SF Securities, told the Global Times Monday that there is not likely to be another credit crunch like the one in late June.

"The banks are not short of money … they are just not lending cash, in order to meet their year-end requirements," Li said.

The banking system currently has more than 1.5 trillion yuan in excess reserves, a larger amount than it has had at year-end in previous years, the central bank said.

If a real credit crunch was around the corner, the central bank's cash injection last week would have been too small, Li said, adding that the tight liquidity will be eased soon as the Ministry of Finance is set to inject around 2 trillion yuan of fiscal deposits into the market this week.

"The PBOC is trying to prevent commercial banks from conducting risky lending practices in the shadow banking system," he said. "In fact, the PBC may even want to see a bank get into trouble, as it could be considered a warning to other financial institutions."