June 29, 2018 / 8:10 AM / 5 months ago

China's money rates inch up on rising cash demand at quarter-end, market sentiment stable

    SHANGHAI, June 29 (Reuters) - China's primary money rates edged up this week
due to a central bank-led health check on financial institutions and rising cash
demand at the end of quarter, while prospects of liquidity level stayed
positive, 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 3.0116 percent on Friday afternoon, nearly 29
basis points higher than the previous week's closing average rate of 2.7260
percent.
    Traders said supply and demand were largely balanced with a few signs of
liquidity tightness this week. A trader at a Chinese bank said the central
bank's assurance during the week also helped improve market confidence.
    With increasing fiscal expenditures at the end of the month, total liquidity
in the banking system would continue to improve in the coming days after
absorbing maturing reverse repos, the People's Bank of China (PBOC) repeatedly
said in statements on its website this week.
    Separately, traders noticed that wording in the central bank's
second-quarter monetary policy committee meeting has changed, a sign that the
country's monetary stance might have switched amid escalating trade friction
between Beijing and Washington and some slowdown in the country's broad economy.

    In the statement, description of managing liquidity level has been changed
to "reasonable and ample", compared with "reasonable and stable" in previous
official documents.
    Deng Haiqing, a visiting economics scholar at Renmin University of China,
said the change in wording suggested that the monetary policy stance has been
"changed rather than fine-tuned".
    The PBOC said on Sunday it would cut the amount of cash that some banks must
keep in reserves by 50 basis points to accelerate the pace of debt-for-equity
swaps and spur lending to smaller firms. 
    The cut in the reserve requirement ratio (RRR) is the central bank's third
in 2018, and came amid worsening U.S.-China trade tensions as well as the U.S.
Federal Reserve's monetary tightening this year.
    In open market operations, the central bank drained a net of 370 billion
yuan through reverse bond repurchase agreements this week, compared with 140
billion yuan of injection on a net basis a week earlier.

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.6551      2.1849      +47.02                     0.00
                                                                     
                                                                     
 Seven-day        3.0116      2.8892      +12.24                     0.00
                                                                     
                                                                     
 14-day           4.2204      4.3347      -11.43                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        7.4650      9.4950      -203.00                    283,053.2
                                                                     0
                                                                     
 Seven-day<CN7DR  4.0500      6.8200      -277.00                    34,393.90
 PO=SS>                                                              
 14-day           3.6500      4.7450      -109.50                    5,626.40
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.8000      2.2700      +53.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.4000      3.8700      -47.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.3000      4.8000      -50.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.6280      2.2890      +33.90                     
                                                                     
 Seven-day        2.8620      2.8410      +2.10                      
                                                                     
 Three-month      4.1550      4.1920      -3.70                      
                                                                     
 
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=        3.2400               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:

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Subhranshu Sahu)
  
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