September 7, 2018 / 7:17 AM / 7 months ago

China injects medium-term cash; short-term money rates rise

    SHANGHAI, Sept 7 (Reuters) - China's central bank injected
medium-term cash into the banking system on Friday, effectively
rolling over loans that matured on the same day, but short-term
rates rose this week on reduced expectations for imminent
loosening of cash conditions.
    The People's Bank of China said it had lent 176.5 billion
yuan ($25.80 billion) to financial institutions through its
one-year medium-term lending facility (MLF). The bank left rates
unchanged from the previous MLF operation, at 3.30 percent.
    A batch of one-year MLF worth 176.5 billion yuan was set to
expire on Friday.
    Ahead of the MLF operation, market expectations had spanned
the spectrum from no injection to an injection exceeding the
amount of maturing loans.
    "Liquidity is still very ample. After the MLF rollover,
expectations for another reserve requirement cut took a hit
because it seems like a cut may be pushed back or not done at
all. So rates at the short end have risen a bit," said a trader
at a state-owned bank in Shanghai.
    "Today our expectation was for the MLF operation to exceed
the amount of maturing loans, but it didn't," said another
trader at an Asian bank in Shanghai. "Money is still very loose,
but sentiment in the interest rate bond market is just average."
    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 2.6725
percent on Friday afternoon, up 6.3 basis points from the
closing average rate of 2.6097 percent on Aug. 31.
    The Shanghai Interbank Offered Rate (SHIBOR) for the same
tenor rose to 2.6730 percent, up 4 basis points from the
previous week's closing rate of 2.6330 percent.
    The one-day or overnight rate stood at 2.5861 percent and
the 14-day repo stood at 2.7665 percent.
    Apart from the MLF injection, the PBOC did not inject any
funds into the interbank money market for the week.
    With no reverse repos maturing this week, that meant the
bank did not inject or drain any funds on a net basis this week
through its regular open market operations.
    "Marginal changes to liquidity is an unquestionable fact.
One element is that the trend of central bank operations
changing from large net injections to precise drip irrigation is
very clear," analysts at Huachuang Securities said in a note.
    "Another element is that consistent market expectations of
continued loose liquidity are clearly starting to waver. A
direct result of this change in expectations is a reduced
willingness of banks to lend and a rise in money rates," the
analysts said.
    The cost of insuring exposure to Chinese debt edged down,
with the spread of the five-year credit default swap rate on
Chinese sovereign debt dropping 0.7 percent from
a week earlier to 59.58 basis points.

Key money rates at a glance:
                  Volume-wei  Previous    Change     Volume
                  ghted       day (%)     (bps)      
                  rate (%)                           
 Interbank repo market
 Overnight        2.5861      2.4929      +9.32      0.00
 Seven-day        2.6725      2.6027      +6.98      0.00
 14-day           2.7665      2.3963      +37.02     0.00
 Shanghai stock exchange repo market
 Overnight        2.7550      2.4150      +34.00     338,420.1
 Seven-day<CN7DR  2.6300      2.5600      +7.00      51,829.50
 14-day           2.7150      2.5900      +12.50     9,974.20
 PBOC Guidance Rates
 Overnight        2.6000      2.5000      +10.00     
 Seven-day        2.6900      2.6000      +9.00      
 14-day           2.7800      2.4200      +36.00     
 Overnight        2.5910      2.4940      +9.70      
 Seven-day        2.6730      2.6330      +4.00      
 Three-month      2.8510      2.8450      +0.60      
 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=    3.1800               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 = 6.8406 Chinese yuan)

 (Reporting by Andrew Galbraith and Winni Zhou; Editing by
Gopakumar Warrier)
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