October 26, 2018 / 8:26 AM / 19 days ago

China money rates fall on cash injections, support pledges

    SHANGHAI, Oct 26 (Reuters) - China's money market rates fell
this week as the central bank conducted its largest weekly
liquidity injection in three months ahead of a cash squeeze from
tax payments and as regulators supported lending to private
firms amid plunging stock markets.
    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 2.5850
percent on Friday afternoon.
    That was 2.3 basis points lower than the closing average
rate of 2.6081 percent on Oct. 19.
    The Shanghai Interbank Offered Rate (SHIBOR) for the same
tenor edged down 0.4 basis points to 2.6180 percent, compared
with the previous week's closing rate of 2.6220 percent.
    The one-day or overnight rate stood at 2.0416 percent and
the 14-day repo stood at 2.6315 percent.
    The People's Bank of China (PBOC) injected a net 460 billion
yuan ($66.12 billion) into the banking system through its
regular open market operations this week, its largest net
injection since July. It made the injections ahead of regular
end-of-month corporate tax payments, which increase demand for
cash.
    The cash injections came as authorities rolled out a series
of measures and statements aimed at supporting private
enterprises and boosting lending to small and medium-sized
enterprises. This followed concerns that plunging equity markets
could spark risks tied to about $620 billion worth of shares
pledged for loans.
    The central bank said on Monday it would boost relending and
rediscount quotas by 150 billion yuan to help meet private
enterprises' funding needs, and on Friday said it would provide
10 billion yuan in initial funding to support private firms'
bond issuance.
    Despite the injections and pledges to ease financing
burdens, analysts at Huachuang Securities said that mounting
pressure from a weakening yuan could have a negative impact on
market liquidity.
    China's currency fell to 22-month lows on Friday
following broad dollar strength, raising expectations that it
could breach the key 7-per-U.S.-dollar level, last seen during
the global financial crisis.
    Data from China's central bank released last week showed
that the PBOC sharply increased its foreign exchange sales in
September, selling a net 119.4 billion yuan worth of foreign
exchange for the month.
    "Larger foreign exchange outflows could be because the
central bank has increased its intervention in the yuan's
exchange rate," the analysts wrote in a note, adding that this
week's injections were not only aimed at tax payments, but at
countering the effect of outflows. 
    "If the PBOC continues to increase its intervention, this
could have a negative impact on liquidity."
    On Friday, the vice governor of the PBOC said that China's
economic fundamentals and large foreign currency reserves would
keep the yuan basically stable, and that it would adopt
"macro-prudential" measure to stabilise market expectations.



 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.0416      2.1838      -14.22                     0.00
                                                                     
                                                                     
 Seven-day        2.5850      2.5983      -1.33                      0.00
                                                                     
                                                                     
 14-day           2.6315      2.6261      +0.54                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.4800      2.4000      +8.00                      345,067.0
                                                                     0
                                                                     
 Seven-day<CN7DR  2.6700      2.6550      +1.50                      46,947.50
 PO=SS>                                                              
 14-day           2.6400      2.6450      -0.50                      9,643.70
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.0800      2.2300      -15.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.6500      2.6400      +1.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           2.8000      2.8000      +0.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.0670      2.2150      -14.80                     
                                                                     
 Seven-day        2.6180      2.6300      -1.20                      
                                                                     
 Three-month      2.9520      2.9480      +0.40                      
                                                                     
 
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=        3.2100               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 = 6.9568 Chinese yuan)

    
 (Reporting by Andrew Galbraith; Editing by Sam Holmes)
  
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