August 10, 2018 / 8:16 AM / 4 months ago

China money rates fall on very loose liquidity; NCD rates hit record lows

    SHANGHAI, Aug 10 (Reuters) - China's primary money rates
fell this week as interbank money conditions remained extremely
loose, with the central bank encouraging lending to bolster the
economy amid slowing growth and a worsening trade environment.
    With already-ample liquidity conditions, the People's Bank
of China skipped its regular open market operations for a second
consecutive week. Last week, it drained 210 billion yuan as that
amount of reverse repurchase agreements matured.
    No reverse repos matured this week, meaning the central bank
neither injected nor drained cash from China's money markets
through its open market operations.
    Faced with slowing economic growth at home and an
increasingly uncertain external environment due to a worsening
Sino-U.S. trade spat, China has attempted to boost the economy
by releasing more liquidity into the banking system, encouraging
lending and promising more "active" fiscal policy.
    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 2.3082
percent on Friday afternoon. 
    That is 7.2 basis points lower than the previous week's
closing average rate of 2.3806 percent.
    The Shanghai Interbank Offered Rate (SHIBOR) for the same
seven-day tenor fell to 2.4260 percent, down 9.9 basis points
from the previous week's close.
    The one-day or overnight rate stood at 1.8171 percent and
the 14-day repo stood at 2.1578 percent.
    Analysts from Guotai Junan Securities said in a note that
the banking system being flush with liquidity follows a series
of nominal cuts to reserve requirement ratios. But they added
that the market situation illustrates the difficulty regulators
face in trying to encourage banks to boost lending.
    "The core reason (for ample banking system liquidity) is
that loose money has not smoothly transmitted into loose
credit," the analysts said.
    In a further indication of loose liquidity, the yields on
negotiable certificates of deposit (NCD), a short-term debt
instrument traded in the interbank market, were at their lowest
levels on record.
    The yield on AAA-rated three-month NCDs was
2.0 percent on Thursday, the most recent day for which there is
data. That is its lowest-ever level, and is down 250 basis
points since late-May.
    While pushing for more lending, policymakers have been keen
to maintain China's multi-year effort to purge excessive levels
of financial risk.
    The country's state planner said this week that it would use
more policy tools such as targeted reserve requirement ratio
cuts to support debt-for-equity swaps this year as it seeks to
curb corporate debt. 

 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        1.8171      1.6217      +19.54                     0.00
                                                                     
                                                                     
 Seven-day        2.3082      2.3412      -3.30                      0.00
                                                                     
                                                                     
 14-day           2.1578      2.1429      +1.49                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        1.9000      1.9950      -9.50                      640,413.5
                                                                     0
                                                                     
 Seven-day<CN7DR  2.2050      2.0850      +12.00                     56,843.80
 PO=SS>                                                              
 14-day           2.2900      2.2300      +6.00                      10,461.30
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        1.8300      1.6300      +20.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.2900      2.3000      -1.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           2.3000      2.3000      +0.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        1.8260      1.6220      +20.40                     
                                                                     
 Seven-day        2.4260      2.4500      -2.40                      
                                                                     
 Three-month      2.8010      2.8160      -1.50                      
                                                                     
 
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=        3.1200               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:


    
 (Editing by Joseph Radford)
  
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