March 17, 2017 / 7:28 AM / in 4 months

China's money rates up after PBOC raises short-term funding costs

7 Min Read

    SHANGHAI, March 17 (Reuters) - China's primary money rates
rose this week after the central bank bumped up short-term
market ones, in what economists said was a bid to stave off
capital outflows and keep the yuan currency stable after the
Federal Reserve hiked U.S. rates.
    The volume-weighted average rate of the benchmark seven-day
repo traded in the interbank market, considered a
key indicator of general liquidity in China, was 2.7745 percent
on Friday - up around one basis points from the previous day's
closing average rate.
    For the week, the rate was up around 25 basis points.
    On Thursday, the People's Bank of China (PBOC) raised open
market operation reverse repurchase agreements by 10 basis
points for seven-, 14- and 28-day tenors. The move - the second
such one in six weeks - brought the seven-day rate to 2.45
percent.
    For the week, the central bank drained 120 billion yuan from
the market through open market operations, a third straight
weekly drain.
    "PBOC is expected to proceed cautiously even in raising
interbank rates," DBS Group Research wrote in a note on Friday.
    "Higher funding costs could potentially trigger disorderly
deleveraging in the mainland bond market."
    The central bank on Thursday also raised interest rates on
SLF short-term loan, sources said. The rate for overnight SLF
loans was raised 20 basis points to 3.30 percent, while those
for 7-day and one-month loans were hiked by 10 bps each, they
said.
    Traders said the negative market impact from raising
short-term borrowing costs was not huge, as the decision came
along with an unexpected cash injection through MLF loans by the
central bank.
    A Shanghai-based trader at a Chinese bank said the cash
injection through MLF loans would avoid a building of tension as
month-end approached. By the end of March, companies' tax
payments are due and a so-called quarterly Macro Prudential
Assessment (MPA) check by the central bank is expected to
tighten liquidity conditions.
    The PBOC extended 113.5 billion yuan ($16.44 billion) of
six-month MLF loans and 189.5 billion yuan of one-year MLF loans
to 17 financial institutions on Thursday.
    The six-month rate on MLF loans now stands at 3.05 percent
and the one-year at 3.20 percent. The policy tool is used by the
central bank to manage banking system and money market
liquidity.
    Hiking SLF at higher rates than MLF and open market
operation rates showed that "China remains committed to the path
of constricting short term speculation in favour of guiding
capital to the real economy", NSBO Research said in a note.
    Market liquidity slightly tightened on Friday, traders said,
suggesting some institutions might have withdrawn funds to buy 
some of six-year 30 billion yuan of convertible bonds issued by
China Everbright Bank. Tightness due to the issuance
would be short-lived, they said.
    The Shanghai Interbank Offered Rate (SHIBOR) for the
seven-day tenor rose to 2.7250 percent on Friday, up more than
three basis points from the previous close. For the week, the
rate was up seven basis points.
    In the bond market, the price of the most-traded 10-year
treasury futures for June delivery was flat on Friday
afternoon. They closed at the highest in more than two months a
day earlier.
    Yields on 10-year Chinese treasury bonds fell to
3.334 percent as of Friday afternoon, around two basis points
lower than the previous close.

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.6786      2.4517      +22.69                     0.00
                                                                     
                                                                     
 Seven-day        2.7745      2.7641      +1.04                      0.00
                                                                     
                                                                     
 14-day           3.3221      3.5187      -19.66                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        9.6100      16.3700     -676.00                    260,877.6
                                                                     0
                                                                     
 Seven-day<CN7DR  4.8250      4.3450      +48.00                     47,751.40
 PO=SS>                                                              
 14-day           4.7500      4.0000      +75.00                     7,517.70
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.7000      2.4000      +30.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.4400      3.8000      -36.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.3000      3.7000      +60.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.6330      2.4410      +19.20                     
                                                                     
 Seven-day        2.7250      2.6938      +3.12                      
                                                                     
 Three-month      4.3507      4.3267      +2.40                      
                                                                     
 
KEY INTEREST RATE SWAPS:
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
                                                 rate*
 2 yr IRS based on 1   CNABAD2YF=        0.0000                 0
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        3.9100               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 = 6.9025 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Richard
Borsuk)
  

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