November 9, 2018 / 8:24 AM / 10 days ago

China's money rates ease as few signs of liquidity stress

    SHANGHAI, Nov 9 (Reuters) - China's primary money rates fell
over the week as there was little sign of liquidity stress so
early in the month, despite the central bank continuing to
refrain from injecting fresh funds into the interbank market.
    Traders said liquidity remained ample in early November, but
tcompanies will start making monthly tax payments next week,
taking cash out of the system.
    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 2.5511
percent on Friday afternoon.
    It was 5 basis points lower than the previous week's closing
average rate of 2.6020 percent, and largely flat compared with
the borrowing cost of 2.55 percent charged by the central bank
in the primary market.
    The People's Bank of China (PBOC) skipped reverse repos
operations for the entire week while lending 403.5 billion yuan
to financial institutions via its 1-year medium-term lending
facility (MLF) on Monday, effectively rolling over the same
amount of such loans expired on the same day.
    "This suggests the PBOC does not intend to inject further
liquidity to push down funding rates, as they have fallen to
comfortable levels, and further action will depend on economic
and market conditions," said Gao Ting, head of China strategy at
UBS Securities
    Gao expects the central bank to maintain flexibly using its
reverse repos to keep the seven-day rate at 2.6 percent.
    Yi Gang, governor of the People's Bank of China was quoted
by state media as saying this week that China's overall
liquidity is ample after four targeted required reserve ratio
cuts this year.
    "There is a lot of water in the pool, and the liquidity is
reasonably abundant," Yi told the state-owned Economic Daily in
an interview.
    Some money market traders and analysts expect Yi's pledge to
step up funding support for cash-strapped private firms meant
interbank borrowing costs would be kept low.
    "While the governor stated there is no change in the overall
monetary policy stance, which is described as prudent, and more
support for the real economy via more bond issuance had been
stated previously, his comment on past policy missteps suggests
a change in policy stance to us," economists at Goldman Sachs
said in a note.
    "Rather, we think the reiteration of the current policy
stance should be read more as an indication that the PBOC will
be measured in terms of the size of additional loosening. In
terms of more tangible measures, we now see a higher probability
that total social financing (TSF) growth will accelerate from
now, but likely at a very measured pace."

Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.0309      1.9550      +7.59                      0.00
                                                                     
                                                                     
 Seven-day        2.5511      2.5581      -0.70                      0.00
                                                                     
                                                                     
 14-day           2.3489      2.3322      +1.67                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.4200      2.3950      +2.50                      287,333.7
                                                                     0
                                                                     
 Seven-day<CN7DR  2.5250      2.5150      +1.00                      44,571.40
 PO=SS>                                                              
 14-day           2.5250      2.5600      -3.50                      12,706.20
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.0500      1.9700      +8.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.5700      2.5900      -2.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           2.4000      2.4000      +0.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.0380      1.9780      +6.00                      
                                                                     
 Seven-day        2.5990      2.6000      -0.10                      
                                                                     
 Three-month      3.0010      3.0000      +0.10                      
                                                                     
 
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:

    
 (Reportiong by Winni Zhou and John Ruwitch; Editing by Simon
Cameron-Moore)
  
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