SHANGHAI, Nov 22 Reuters Liquidity conditions in China39;s interbank money markets eased further on Tuesday, as cash supply far outpaced demand, despite a huge withdrawal of funds by the central bank.

Key rates dropped, with the volumeweighted average price of the overnight repo traded in the interbank market falling below the threshold of 1 for the first time in two months to 0.8532, its lowest since Jan. 6 last year.

By midday, the overnight repo traded at 0.8716, down about 21 basis points from the previous close, and the sevenday repo stood at 1.6361, more than 36 basis points lower than the reverse repo rate charged by the People39;s Bank of China PBOC.

Traders said declines in interbank rates were largely due to looser cash conditions after financial institutions cut leverage this month.

After crazy bond redemptions last week, everyone has a lot of cash in hand, said a trader at a fund.

While most other major economies are raising interest rates to tame inflation, Beijing is focusing more on propping up a slowing economy by keeping money rates low.

And many market participants had taken advantage of the low repo rates to fund leveraged trades in bonds, traders said.

The government bond market had its worst singleday selloffs in two years last week, as risk appetite swelled amid rising expectations for a gradual easing of stringent COVID19 curbs and official moves to support the troubled property sector.

Sentiment steadied this week, as the PBOC drained 170…