May 4, 2018 / 6:58 AM / 3 months ago

China's money rates ease as cash demand cools, c.bank drains funds

    SHANGHAI, May 4 (Reuters) - China's primary money rates
slipped this week as cash demand eased after the month-end peak,
prompting the central bank to drain funds from the market for a
second straight week.
    Markets are focused on trade talks between China and the
United States being held in Beijing, although concrete details
are not likely to be imminently announced. U.S. Treasury
Secretary Steven Mnuchin said on Friday that the U.S. trade
delegation has been having very good conversations.
    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 2.6906
percent on Friday afternoon, about 34 basis points lower than
the previous week's closing average rate of 3.0269 percent. 
    Traders said cash conditions were balanced to slightly loose
this week, after the month-end peak demand for funds.
    In open market operations, the People's Bank of China (PBOC)
drained a net 110 billion yuan ($17.32 billion) from banking
system for the week, compared with 270 billion yuan drain on a
net basis a week earlier.
    The PBOC said on Wednesday that reduced requirements for
bank reserves - which came into effect on April 25 - released a
total of almost 1.3 trillion yuan, out of which 900 billion yuan
had been used by the banks to repay their respective outstanding
medium-term lending facility (MLF) loans.
    It added that 156 billion yuan in outstanding MLF loans will
be due this month - that is down from an original maturity of
392.5 billion yuan, as calculated by Reuters based on official
data. The difference suggested that only part of the maturing
MLFs for May were repaid.
    The central bank has yet to respond to Reuters query about
details of its repayment for outstanding MLF loans. 
    Some market watchers said they do not expect cuts in the
reserve requirement ratio (RRR), targeted to help banks repay
their outstanding MLF loans, as a one-off move.
    Ming Ming, an analyst at CITIC Securities, said he expects
RRR cuts to become "normal", predicting that the PBOC will make
another two to three reductions this year and the next.

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5526      2.6279      -7.53                      0.00
                                                                     
                                                                     
 Seven-day        2.6906      2.8080      -11.74                     0.00
                                                                     
                                                                     
 14-day           3.2560      3.5500      -29.40                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.0250      3.3250      -30.00                     246,644.7
                                                                     0
                                                                     
 Seven-day<CN7DR  3.2500      3.3600      -11.00                     34,004.40
 PO=SS>                                                              
 14-day           3.3550      3.4000      -4.50                      13,650.90
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5700      2.6600      -9.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.8000      3.1000      -30.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.4000      3.6000      -20.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.5940      2.6810      -8.70                      
                                                                     
 Seven-day        2.8060      2.8520      -4.60                      
                                                                     
 Three-month      3.9930      3.9930      +0.00                      
                                                                     
 
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=        3.5500               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 = 6.3496 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch
Editing by Jacqueline Wong)
  
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