China's primary money rates edged up slightly for the week as a central bank-led net fund injection was offset by seasonal cash demand. The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity in China, was 2.8724 percent on Friday afternoon, close to 4 basis points higher than the previous week's closing average rate of 2.8282 percent.

Traders said cash conditions started to get tight later in the week mainly due to factors including corporate tax payments, which offset some of the impact from liquidity support from the central bank. In the open market operations, the People's Bank of China (PBOC) injected a net 260 billion yuan via its reverse bond repurchase agreements for the week, compared with a net drain of 330 billion yuan a week earlier. The weekly net cash injection was the first in four weeks.

The PBOC explained in a statement on Friday that the cash injection was aimed to keep the liquidity "basically stable" to counter factors including "tax period and financial institutions' reserve requirement contributions". A batch of six-month medium-term lending facility loans with a volume of 113.5 billion yuan is due to mature on Saturday.

The PBOC has already injected 298 billion yuan into the financial system via one-year MLF loans last week, more than compensating for the 283 billion yuan of such loans that mature this month. Separately, China's central bank on Monday scrapped two measures that were put in place to support the yuan when it was under significant selling pressure, suggesting Beijing is anxious to quash one way bets on the yuan as outflows ease and exporters face strain.

One of the two measures was lifting rules that required foreign banks to put aside reserves for offshore yuan deposits. Both foreign exchange traders and money market participants said the move would improve offshore liquidity but expected limited impact on the onshore cash conditions.

Copyright Reuters, 2017