September 30, 2016 / 5:05 AM / 10 months ago

China's money rates up sharply on the week, but ease off Friday

7 Min Read

SHANGHAI, Sept 30 (Reuters) - China's primary money rates
were up sharply on the week on Friday due to a cash crunch
mid-week after a large central bank-led net drain from the
financial system, but liquidity conditions had eased up on the
day, traders said.
    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 2.5717
percent Friday, a sizable 24.16 basis points above the previous
week's closing average rate, but 17.42 basis points lower from a
day earlier. 
    The overnight Shanghai Interbank Offered Rate (SHIBOR)
 tenor was at 2.2677 percent, 14 basis points higher
than the previous week's close.
    Money supply and demand in the market were balanced, with
conditions slightly loser on Friday, traders said, but noted it
was tight in the middle of the week due to unexpected large net
drain by the central bank.
    The People's Bank of China (PBOC) drained a net 420.1
billion yuan ($62.99 billion) from the market through open
market operations this week, compared with a net injection of
670 billion yuan a week earlier. That was the most
on a weekly basis in nearly three months, despite expected
strong cash demand ahead of the week-long national day holiday.
    "Some market participants were very cautious in the middle
of the week after two straight days of huge net drains through
the open market operations, but the pressure was soon relieved
as big state-owned banks were willing to lend out money," said a
trader at a Chinese bank in Shanghai.
    "The liquidity is ample now. And we expect the signs of
pressure will ease further after the holiday," the trader added.
    China's financial markets are shut for the National Day
holiday from Oct. 1 to Oct. 7.
    In recent weeks the central bank has also reintroduced the
use of longer tenor, more expensive reverse repo operations in
what traders and analysts say is an effort to reduce dependence
on cheap overnight borrowing and curb leverage in the bond
market. 
    Banks are usually cautious at the quarter-end due to the
Macro-Prudential Assessment (MPA), a new regulatory system
imposed by the PBOC at the end of the quarter to gauge
commercial banks' capital adequacy and leverage ratios, assets
and liabilities, liquidity and foreign debt risks.
    In addition, companies usually shore up their cash positions
at the end of the quarter to make tax payments, which will also
drain liquidity.

 

 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.3277      2.2677      +6.00                      0.00
                                                                     
                                                                     
 Seven-day        2.5717      2.7459      -17.42                     0.00
                                                                     
                                                                     
 14-day           2.7491      3.1568      -40.77                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        4.9350      35.4100     -3,047.50                  215,571.90
                                                                     
                                                                     
 Seven-day<CN7DR  0.7050      2.8850      -218.00                    12,629.00
 PO=SS>                                                              
 14-day           1.4900      2.1800      -69.00                     7,400.70
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.3100      2.3000      +1.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.5500      2.8500      -30.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           2.8300      3.3000      -47.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.3270      2.1880      +13.90                     
                                                                     
 Seven-day        2.4770      2.4870      -1.00                      
                                                                     
 Three-month      2.8015      2.8015      +0.00                      
                                                                     
 
KEY INTEREST RATE SWAPS:
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
                                                 rate*
 2 yr IRS based on 1   CNABAD2YF=        0.0000              -1.5
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        2.7300               n/a
 
*This spread can be seen as a proxy for forward-looking market
expectations of an interest rate cut or rise
                                       
China FX and money market guide: 
 China debt market guide: 
 SHIBOR rates: 
 Reports on central bank open market operations: 
 New Chinese debt issues: 
 Prices for central bank bills, treasury bonds and sovereign
bonds: 
 Overview of China financial market data: 


($1 = 6.6698 Chinese yuan renminbi)

    
 (Reporting by Winni Zhou and Nathaniel Taplin; Editing by Shri
Navaratnam)

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