(Yicai Global) March 30 -- As the quarter comes to an end, China's market liquidity has remained loose for nearly three months and has now started to diverge. Although liquidity in the banking system remains adequate, liquidity among non-bank financial institutions is again tight.  

The overnight bond repo rate on the Shanghai Stock Exchange soared 22 percent at one time yesterday, while the overnight repo rate on the Shenzhen Stock Exchange rose 12.2 percent, hitting a new year-to-date high.

The cash crunch was due to quarter-end factors and non-bank financial institutions also saw tight liquidity in late March, a fund trader told Yicai Global. China's central bank recently drained funds in the open market, which ended loose market liquidity.

China's central bank also suspended open market operations for five consecutive trading days up to yesterday. The People's Bank of China has withdrawn funds for eight consecutive days since March 20, except for March 22, when it conducted a CNY10 billion repo operation though it also raised repo interest rates by five basis points.

An abrupt rise in money rates is anticipated at the end of the month, said Zhang Xu, chief analyst for fixed income products at Everbright Securities, adding that due to holiday factors such as Chinese New Year, the central bank has provided loose liquidity for the market since the start of the year, making the market believe loose liquidity would continue.

"However, loose liquidity is unsustainable," said Zhang, adding that the central bank's recent withdrawal of liquidity is actually sending signals to the market that it will maintain a neutral monetary policy.

Compared with the tight liquidity seen among non-bank financial institutions, liquidity in the inter-bank system remained stable. The Shanghai Interbank Offered Rate did not see any major fluctuations yesterday.