September 14, 2018 / 7:30 AM / a month ago

China's money rates fall after c.bank resumes cash injection

    SHANGHAI, Sept 14 (Reuters) - China's primary money rates
fell for the week as liquidity improved following a resumption
of the central bank's injection of funds.    
    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 2.6185
percent on Friday afternoon, nearly 6 basis points lower than
the previous week's closing average rate of 2.6742 percent.
    Traders said cash conditions were loose and market
confidence has improved after the central bank resumed injecting
cash through reverse bond repurchase agreements on Wednesday,
following a hiatus of three weeks.
    The People's Bank of China (PBOC) injected a net 330 billion
yuan ($48.18 billion) into interbank money market through open
market operations this week, despite no reverse repo maturing
during the same period. And there was no cash injection or
withdrawal a week earlier.
    The PBOC's fresh liquidity support was aimed at countering
"factors related to tax payments and government bond issuance"
to "maintain reasonably ample liquidity" in the banking system,
it said in a statement this week.
    Some market participants said the amount of weekly injection
via the bond instruments exceeded their expectations and were
concerned that high liquidity levels could drag down borrowing
costs further and pile additional selling pressure on the yuan.
    China's yuan weakened against the U.S. dollar on Friday, and
was on course for a weekly loss, which would be its 13th in the
past 14 weeks, as heightened trade tension between Beijing and
Washington continued to weigh on market sentiment.  
    David Qu, markets economist at ANZ in Shanghai believes that
the central bank remained focused on the interest rate gap
between China and United States and the implications for capital
flows.
    "The PBOC is expected to avoid a reversal of U.S.-China
interest rate spreads to avoid potential capital outflows,
particularly as the USD remains strong and some EM currencies
are experiencing fluctuations," Qu said. 
    Qu added that financial markets have already priced in a
very high possibility that the U.S. Federal Reserve will raise
the policy rate later this month.
    
Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.4792      2.5043      -2.51                      0.00
                                                                     
                                                                     
 Seven-day        2.6185      2.6366      -1.81                      0.00
                                                                     
                                                                     
 14-day           2.6407      2.6616      -2.09                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.5100      2.2750      +23.50                     218,430.5
                                                                     0
                                                                     
 Seven-day<CN7DR  2.5900      2.5300      +6.00                      48,303.70
 PO=SS>                                                              
 14-day           3.0000      2.6450      +35.50                     10,466.00
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5000      2.5300      -3.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.6000      2.6500      -5.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           2.6500      2.7300      -8.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.4890      2.5300      -4.10                      
                                                                     
 Seven-day        2.6450      2.6630      -1.80                      
                                                                     
 Three-month      2.8300      2.8430      -1.30                      
                                                                     
 
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 = 6.8488 Chinese yuan)

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