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China's money rates fall, thanks to few signs of liquidity stress
September 8, 2017 / 8:56 AM / in a month

China's money rates fall, thanks to few signs of liquidity stress

    SHANGHAI, Sept 8 (Reuters) - China's primary money rates
fell for the week on few signs of liquidity stress in the
market, which shrugged off the third straight weekly net cash
drain led by the central bank, 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, closed at
2.8282 percent on Friday, down more than 11 basis points from
the previous week's closing average rate of 2.9408 percent. 
    Market participants said cash conditions were relatively
loose for the week, leading to declines in money rates. 
    In the open market operations, the People's Bank of China
(PBOC) skipped reverse bond repurchase agreement for four days
this week, noting "relatively high" levels of liquidity in the
banking system.
    That led to a net drain of 330 billion yuan ($51.19 billion)
for the week. The previous week's drain was 280 billion yuan a
week earlier.
    On Thursday, the PBOC injected 298 billion yuan into the
financial system via one-year medium-term lending facility (MLF)
loans, more than compensating for the 283 billion yuan of such
loans that mature this month.
    Two batches of MLF loans totalling 169.5 billion yuan
matured on Thursday. Another batch of six-month MLF loans, for
113.5 billion yuan, matures on Sept. 16.
    Traders said the net cash drain via reverse repos was not a
concern to the market. 
    Although money rates fell this week, key gauges spiked in
late August when the Chinese currency also strengthened against
the U.S. dollar, prompting some market talk on the possibility
of monetary easing later this year.
    Zhao Yang, chief China economist at Nomura International,
said at a forum in Shanghai that he expected the monetary policy
to remain neutral, and a cut in the banks' reserve requirement
ratio (RRR) is "unlikely".
    "There won't be a reduction in the RRR this year, liquidity
issue can be solved by using other methods, central bank would
continue to use open market operations to inject liquidity,"
Zhao added.
 
    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5973      2.6116      -1.43                      0.00
                                                                     
                                                                     
 Seven-day        2.8282      2.8241      +0.41                      0.00
                                                                     
                                                                     
 14-day           3.7715      3.7816      -1.01                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.5250      3.3800      +14.50                     866,311.6
                                                                     0
                                                                     
 Seven-day<CN7DR  3.6300      3.8200      -19.00                     64,795.80
 PO=SS>                                                              
 14-day           4.0500      3.9250      +12.50                     10,697.40
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.6200      2.6300      -1.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.2500      3.2000      +5.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.8000      3.8000      +0.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.6360      2.6406      -0.46                      
                                                                     
 Seven-day        2.8023      2.8056      -0.33                      
                                                                     
 Three-month      4.4281      4.4348      -0.67                      
                                                                     
 
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=        3.7450               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 = 6.4460 Chinese yuan)

    
 (Reporting by Winni Zhou and David Stanway; Editing by Richard
Borsuk)
  

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