January 26, 2018 / 7:58 AM / 8 months ago

China money rates fall as targeted RRR cut boosts liquidity

    SHANGHAI, Jan 26 (Reuters) - China's primary money rates eased this week as
funds released from a reduction in some banks' reserve requirements boosted
market liquidity.
    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 2.9177 percent on Friday afternoon. 
    That was 1.1 basis points below the previous week's closing average rate of
2.9225 percent.
    The Shanghai Interbank Offered Rate (SHIBOR) for same tenor fell to 2.8420
percent, 4.9 basis points lower than the previous week's close.
    The one-day or overnight rate stood at 2.5169 percent and the 14-day repo
stood at 3.9055 percent.
    The People's Bank of China (PBOC) chose to skip open market operations for a
second consecutive day on Friday. It said banking system liquidity was
"relatively high" despite having drained a net 320 billion yuan from the market
for the week, compared with a net injection of 590 billion yuan a week earlier.
    A previously announced cut in the amount of cash some Chinese banks must
hold in reserve offset the drain, and helped banks to absorb maturing repos. 
    The reduction in the reserve requirement ratio (RRR), announced last
September, became effective on Thursday following a PBOC statement on its
official Weibo account last week.
    The cut reduced reserve requirements for banks that meet certain criteria
for lending to small business and the agricultural sector, and is intended to
support the development of "inclusive" financial services, the PBOC said last
year.
    Following the cut, market liquidity "had a looser bias," CIB Research
analysts said in a note. "The loose liquidity environment should continue
through the end of the month," the analysts said.
    Despite currently looser conditions, market watchers expect the central bank
to continue to maintain a tight overall policy bias, as financial deleveraging
remains a priority.
    "We think (the PBOC) will maintain the policy stance of tightening in
long-term liquidity supply and the central bank should be baised towards
injecting long-term liquidity via targeted instruments, such as medium-term
lending facility (MLF), instead of wide-range RRR reductions," ANZ China Markets
Economist David Qu said in a note.

 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5169      2.5394      -2.25                      0.00
                                                                     
                                                                     
 Seven-day        2.9177      2.9064      +1.13                      0.00
                                                                     
                                                                     
 14-day           3.9055      3.9039      +0.16                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        1.5000      2.9600      -146.00                    741,832.7
                                                                     0
                                                                     
 Seven-day<CN7DR  3.6500      3.8800      -23.00                     71,314.60
 PO=SS>                                                              
 14-day           3.6800      3.7050      -2.50                      5,736.90
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5400      2.5600      -2.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.3600      3.0500      +31.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.9000      4.1000      -20.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.5506      2.5634      -1.28                      
                                                                     
 Seven-day        2.8420      2.8498      -0.78                      
                                                                     
 Three-month      4.7292      4.7317      -0.25                      
                                                                     
 
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=        3.9600               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:

    
 (Reporting by Andrew Galbraith; Editing by Jacqueline Wong)
  
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