September 28, 2018 / 8:52 AM / 8 months ago

China's money rates up on quarter-end demand, market expects further easing

    SHANGHAI, Sept 28 (Reuters) - China's primary money rates
inched up for the week due to higher demand for cash from
corporates and households at the end of the quarter, while the
central bank drained cash from the money market.
    Considered the best indicator of general liquidity in China,
the volume-weighted average rate of the benchmark seven-day repo
 traded in the interbank market was 2.6865 percent
on Friday afternoon, about 4.5 basis points higher than the
previous week's closing average rate of 2.6414 percent.
    The People's Bank of China (PBOC) has drained a net 230
billion yuan ($33.41 billion) through open market operations so
far this week, explaining it had sought to offset the
"relatively high" liquidity levels resulting from the finance
ministry releasing funds to companies at the end of the quarter.
    Traders said the PBOC's action left overall cash conditions
largely balanced.
    Companies' demand for cash usually rises at the end of
month, while banks also need to shore up their cash positions to
meet certain administrative requirements and a health check by
the central bank at the end of the quarter. Households and
individuals might also withdraw some cash ahead of holidays.
    China's financial markets will close for the week-long
National Day holiday starts Oct.1.
    Separately, China's central bank left short-term rates
unchanged on Thursday, choosing not to follow a benchmark
interest rate rise by the U.S. Federal Reserve despite the risk
that it could put renewed pressure on the yuan.

    While the PBOC had been expected to stand pat, the decision
demonstrated the diverging policy paths taken by the world's two
largest economies.
    Analysts forecast more policy support measures are on the
way in China in coming months, including at least one more
reduction in banks' reserve requirements, other forms of
liquidity injections and bigger tax cuts.
    "We maintain our view that Beijing has shifted its policy
stance to outright stimulus and see an increasing likelihood of
a 50 basis points reserve requirement ratio (RRR) cut before
year-end to replace the large amount of medium-term lending
facility (MLF) maturities, bolster market sentiment, and boost
investment and growth," Lu Ting, chief China economist at Nomura
in Hong Kong wrote in a note on Friday.
    More than 1.3 trillion yuan worth of MLF loans will mature
in the four quarter, with 451.5 billion yuan due to expire in
    Lu Zhengwei, chief economist at Industrial Bank in Shanghai,
said in a note to clients on Friday that he expects a RRR cut to
take place as soon as October.
Key money rates at a glance:
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  rate (%)                                           
 Interbank repo market
 Overnight        2.4248      2.4287      -0.39                      0.00
 Seven-day        2.6865      2.6957      -0.92                      0.00
 14-day           3.4145      3.2196      +19.49                     0.00
 Shanghai stock exchange repo market
 Overnight        3.9150      3.7300      +18.50                     184,743.3
 Seven-day<CN7DR  3.8800      3.8550      +2.50                      32,854.10
 14-day           3.1000      3.6950      -59.50                     16,994.70
 PBOC Guidance Rates
 Overnight        2.4400      2.4600      -2.00                      
 Seven-day        2.7000      2.6900      +1.00                      
 14-day           3.6000      3.6000      +0.00                      
 Overnight        2.4450      2.4600      -1.50                      
 Seven-day        2.7300      2.7220      +0.80                      
 Three-month      2.8430      2.8380      +0.50                      
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
 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
 Overview of China financial market data:

($1 = 6.8838 Chinese yuan)

 (Reporting by Winni Zhou and John Ruwitch; Editing by Simon
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