Money market rates fell after the Chinese government announced injection of funds into an interbank market system. This interbank market was still recovering after a big cash crisis.
The benchmark 7-day bond's weighted average returned to its normal range to 3.80%, falling 15 basis points. The 14-day repo rate rose slightly by 7 basis points and then dropped back to 4.28% after falling by 16 basis points. The slight increase of this benchmark was due to the additional funds that bankers set aside for the required reserve ratio.
The central bank was determined to bring under control risky lending after allowing the increase in short-term borrowing cost to almost 30% on June 20. In addition, policymakers reassured the public that China's financial system was still pretty much liquid.
A Shanghai commercial bank trader commented, "Positive official attitudes towards ensuring liquidity in the banking system have helped ease jitters over supply and effectively terminated the squeeze."
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