May 18, 2018 / 8:13 AM / 6 months ago

China's money rates ease on c.bank liquidity support, seasonal factors fade

    SHANGHAI, May 18 (Reuters) - China's primary money rates
eased on Friday after a rise in the middle of the week as
liquidity tightness, caused by monthly corporate tax payment,
eased following central bank-led cash injection, traders said.
    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 2.6840
percent on Friday afternoon, 0.7 basis points lower than the
previous week's closing average rate of 2.6907 percent.
    The rate rose to a high of 3.7 percent at one point on
Tuesday before closing at 2.8981 percent.
    To counter the liquidity stress triggered by monthly tax
payment, the People's Bank of China (PBOC) lent support via
multiple tools to keep market sentiment stable, traders said.
    The PBOC lent 156 billion yuan ($24.48 billion) to financial
institutions on Monday via its 1-year medium-term lending
facility (MLF) with rates unchanged and 80.1 billion yuan
through pledged supplementary lending (PSL).
    And the central bank also injected 410 billion yuan on a net
basis through reverse repos in open market operations (OMO) this
week, the first weekly net fund injection in a month.
    However, market participants expect the PBOC will be more
circumspect in its cash injections in the near term.
    A trader at a Chinese bank in Shanghai pointed out that the
central bank managed the liquidity in the banking system "very
carefully" as it skipped OMO on Friday as soon as seasonal
factors had faded.
    The PBOC reiterated that it would maintain a stable and
neutral monetary policy in its first-quarter monetary policy
implementation report and revealed that weighted average loan
rate increased by 22 basis points to 5.96 percent in the first
three months of the year.
    Tommy Xie, an economist at OCBC Bank in Singapore said the
loan rate increase suggested that higher interbank funding costs
arising from deleveraging efforts had filtered through to the
broader economy.
    "This is likely to further weigh down China's growth
prospect," he wrote in a note.
    
Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5437      2.5612      -1.75                      0.00
                                                                     
                                                                     
 Seven-day        2.6840      2.7557      -7.17                      0.00
                                                                     
                                                                     
 14-day           3.6726      3.5602      +11.24                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.9650      2.7100      +25.50                     175,756.7
                                                                     0
                                                                     
 Seven-day<CN7DR  3.2950      3.1000      +19.50                     31,978.00
 PO=SS>                                                              
 14-day           4.0500      3.8200      +23.00                     13,167.50
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5500      2.5800      -3.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.7200      2.8600      -14.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.9000      3.5800      +32.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.5630      2.5970      -3.40                      
                                                                     
 Seven-day        2.7680      2.8030      -3.50                      
                                                                     
 Three-month      4.1470      4.1010      +4.60                      
                                                                     
 
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=        3.6100               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 = 6.3725 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch
Editing by Shri Navaratnam)
  
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