August 4, 2017 / 7:01 AM / 6 months ago

China's money rates fall as seasonal factors fade

    SHANGHAI, Aug 4 (Reuters) - China's primary money rates
eased for the week as liquidity conditions improved following
the month-end peak demand for cash and even as the central bank
drained funds. 
    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 2.7725
percent on Friday, more than 8 basis points lower than the
previous week's closing average rate at 2.8543 percent.
    Traders said cash conditions in the money market were
balanced with a tightening bias.
    One trader at a Chinese bank said although seasonal factors
had faded, the central bank's unwillingness to inject net cash
into the market this week had made market participants cautious.
    For the week, the People's Bank of China (PBOC) drained a
net 40 billion yuan ($5.95 billion) from the market via its
reverse bond repurchase agreements, compared with a net
injection of 280 billion yuan a week earlier.
    Lu Zhengwei, chief economist at Industrial Bank in Shanghai,
said the PBOC's switch to net cash drain via open market
operations did not mean a change in monetary policy. 
    Banks usually shore up their cash positions at the end of
the month to meet regulatory requirements, which drains funds
from the banking system. Cash conditions in the money market
traditionally get tight during that period, but they ease at the
beginning of the month.
    Some market watchers said the PBOC had managed banking
system liquidity by "cutting the peaks to fill in the valleys"
now, paying close attention to changes in cash conditions in the
    Ming Ming, analyst at CITIC Securities, said in a note on
Friday that he expects monetary policy and financial regulations
to "stabilise" in the second half of this year.
    He said money rates would "hardly surpass the highs reached
earlier this year", noting that tightened financial regulations
and the country's deleveraging campaign had sent key money rates
to two-year highs at the end of April.

 Key money rates at a glance:
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  rate (%)                                           
 Interbank repo market
 Overnight        2.6703      2.7819      -11.16                     0.00
 Seven-day        2.7725      2.8754      -10.29                     0.00
 14-day           3.6790      3.8453      -16.63                     0.00
 Shanghai stock exchange repo market
 Overnight        2.9800      3.1950      -21.50                     164,577.6
 Seven-day<CN7DR  3.2750      3.4800      -20.50                     37,127.80
 14-day           3.3800      3.5550      -17.50                     4,652.00
 PBOC Guidance Rates
 Overnight        2.7000      2.8000      -10.00                     
 Seven-day        3.1000      3.4000      -30.00                     
 14-day           3.6800      3.8000      -12.00                     
 Overnight        2.7210      2.8070      -8.60                      
 Seven-day        2.8657      2.8840      -1.83                      
 Three-month      4.2724      4.2704      +0.20                      
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
 2 yr IRS based on 1   CNABAD2YF=        0.0000              -1.5
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        3.6900               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
 Overview of China financial market data:

($1 = 6.7187 Chinese yuan)

 (Reporting by Winni Zhou and John Ruwitch; Editing by
Jacqueline Wong)
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