SHANGHAI, July 25 ― Chinese money rates rose this week on demand for funds for a slew of initial public offerings (IPO) but rates are expected to fall back next week as IPO cash is released, with a major policy bank also lending actively, traders said.

The benchmark weighted average of the seven-day bond repurchase agreement stood at 4.11 per cent by midday, up 36 basis points from last week's close. The overnight repo rate was at 3.37 per cent, up 7 basis points.

But another actively traded maturity, the 14-day repo, fell 14 basis points this week to 4.89 per cent because funds tied up in IPO subscriptions will be released next week.

Nine companies opened IPO subscriptions to investors on Wednesday and yesterday. Data available by Friday for Wednesday's five IPOs showed their subscriptions had taken up 415.5 billion yuan (RM213 billion), the official Shanghai Securities News reported.

Local media have estimated the IPOs could temporarily lock up as much as one trillion yuan in funds until early next week.

“The impact of the IPO subscriptions is expected to fade next week,” said a trader at a Chinese commercial bank in Shanghai. “So there is no panic, with many banks lending today.”

Among the main lenders on Friday was the China Development Bank (CDB), traders said. The abundance of cash from the country's top policy bank appeared to be related to 1 trillion yuan injected into it by the Chinese central bank of late.

Long-term liquidity supply uncertain

While the market widely expects liquidity conditions to improve next week, a further slowdown in capital inflows into China makes long-term supply in the money market less certain, traders said.

Data released on Tuesday showed that China's central bank, together with commercial banks, sold 88.3 billion yuan of foreign exchange on a net basis in June, reversing net purchases of 37.5 billion yuan in May and the first time they sold foreign currency in 10 months.

The data supported regulators' comments that China saw some capital outflows in the second quarter of this year after pressure from inflows in the first quarter.

But China may see more capital inflows in the rest of 2014, the foreign exchange regulator said on Wednesday.

Currency purchases and sales by the People's Bank of China (PBOC) are a main source of local currency inflows into and out of the domestic monetary base and thus have a major impact on China's money market.

The PBOC skipped this week's open market operations, thereby effectively injecting funds into the money market via maturing repos for the 11th straight week.

Traders said this was part of the central bank's efforts to ensure sufficient liquidity in the money market at a time when supplies stemming from currency purchases have been reduced.

The government is urging more effort to help cushion a slowdown in growth in the world's second-largest economy. ― Reuters