November 2, 2018 / 8:08 AM / 17 days ago

China's money rates ease after month-end but still up on week

    SHANGHAI, Nov 2 (Reuters) - China's primary money rates
eased on Friday from month-end highs but remained elevated
compared with a week earlier, as the central bank refrained from
injecting fresh funds into money markets for the sixth straight
trading day.
    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 2.5956
percent on Friday afternoon.
    That was about 11 basis points (bps) lower than Wednesday's
close of 2.7098 percent, but still higher than the previous
week's closing average rate of 2.5743 percent.
    China's overnight money rates jumped to three-week highs on
Wednesday, driven by seasonal cash demand on the last trading
day of the month.
    The People's Bank of China (PBOC) has skipped open market
operations since last Friday, and maturing reverse repos drained
a total of 520 billion yuan ($75.50 billion) during the six-day
period.
    The central bank attributed the move to "reasonably ample
liquidity in the banking system", it said in a statement.
    Traders said cash conditions were largely balanced as
month-end demand faded but pointed out that financial
institutions will have to make their reserve payments on Monday,
which is likely to drain some funds from the interbank money
market. 
    A batch of medium-term lending facility (MLF) loans worth of
403.5 billion yuan is set to expire on Monday, but market
participants largely expect the central bank to roll it over.
    China's economic growth is expected to falter further in
coming months after cooling to its weakest quarterly pace since
the global financial crisis in July-September.
    Analysts believe authorities will step up their recent
growth boosting measures in response, ranging from higher
infrastructure spending to more tax cuts and liberal liquidity
injections, including more reductions in banks' reserve
requirements.   
    "Signs of economic downturn has become more obvious, despite
some major economies tighten their monetary policies, China's
central bank is likely to continue easy policy stance," said Li
Qilin, chief economist at Lianxun Securities. 
    "At the same time, it will also use some targeted policy to
guide the funds flow to private and small- and medium- firms," 
    Chinese President Xi Jinping on Thursday promised support
for struggling private firms, pledging more tax cuts and
financial aid, underscoring government resolve to support the
private sector as growth slows.
    However, Qin Han, chief bond analyst at Guotai Junan
Securities said in a note on Friday that he expects the
liquidity to face some pressure if the central bank does not
"actively counteract" declines in the FX positions amid yuan
depreciation.
    Latest official data showed that PBOC sold a net 119.4
billion yuan worth of foreign exchange in September, the highest
in 20 months, up from 2.39 billion yuan in August.
    Changes in the FX positions on central bank's balance sheet
affect the base money.
    China's yuan has suffered persistent depreciation pressure
this year as an escalating trade dispute with the United States
added to pressure on the already cooling economy.
    
Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.4705      2.5404      -6.99                      0.00
                                                                     
                                                                     
 Seven-day        2.5956      2.6449      -4.93                      0.00
                                                                     
                                                                     
 14-day           2.5021      2.5819      -7.98                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.6400      2.5300      +11.00                     249,280.2
                                                                     0
                                                                     
 Seven-day<CN7DR  2.6750      2.6350      +4.00                      33,369.80
 PO=SS>                                                              
 14-day           2.6600      2.6500      +1.00                      8,238.60
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.4900      2.5500      -6.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.6300      2.7000      -7.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           2.6000      2.7000      -10.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.4770      2.5470      -7.00                      
                                                                     
 Seven-day        2.6490      2.6730      -2.40                      
                                                                     
 Three-month      2.9810      2.9760      +0.50                      
                                                                     
 
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=        3.2100               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 = 6.8871 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Kim
Coghill)
  
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