SHANGHAI (Reuters) – China’s benchmark overnight repo rate fell to a four-year low of nearly 1 percent on Friday as the central bank continued to inject funds into money markets to ensure ample liquidity ahead of a seasonal surge in cash demand at the end of June.

Typical market jitters over liquidity at this time of year have been amplified after regulators took over credit-laden Inner Mongolia-based Baoshang Bank in May. Some smaller banks and brokers have since struggled to get short-term funding and their financing costs have spiked.

The volume-weighted average rate of China’s benchmark overnight repo for banks fell to 1.10 percent on Friday morning, the lowest since June 2015.

The People’s Bank of China injected a net 285 billion yuan ($41.56 billion) for the week via open market operations, more than four times the amount last week.

However, the weighted average repo rate of the same tenor traded on the Shanghai Stock Exchange was 1.9550 percent, about 85.5 basis points higher than the over-the-counter interbank money market.

“The fact is that the central bank has kept pouring liquidity, but the transmission is not functioning well,” said a trader at a medium-sized Chinese bank, adding the recent generous cash injections by the central bank should not be interpreted as a sign of a change in its monetary policy stance.

Late June usually sees strong demand for cash in China as financial institutions have to shore up their balance sheets to meet half-year end regulatory requirements.

In China, many small lenders and non-bank financial institutions do not have direct access to the PBOC’s various liquidity facilities and need to rely on bigger banks.

Traders said some smaller institutions were denied loans in interbank markets last week, prompting regulators to warn larger lenders not to cut off such firms from funding markets.

Non-bank financial institutions have increasingly turned to stock exchanges to borrow cash, where requirements for collateral remained less stringent.

Rising demand for cash on the exchange triggered spikes in the interest rates and trading volume. Volume of 14-day repos traded on the Shanghai Stock Exchange leapt to an all-time high of 208.9 billion yuan ($30.47 billion) on Monday. For the week, the PBOC also injected 240 billion yuan of long-term funding through its medium-term lending facility.

($1 = 6.8550 Chinese yuan)

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