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China money rates ease further on passive central bank
July 17, 2013 / 5:03 AM / 4 years ago

China money rates ease further on passive central bank

SHANGHAI, July 17 (Reuters) - China's money rates declined
for a fourth consecutive trading session on Wednesday morning as
liquidity flowed into the market from maturing instruments,
while the central bank refrained open market operations. 
    After allowing an alarming liquidity crunch last month, the
People's Bank of China (PBOC) has abstained from open market
operations since late June, in order to let maturing bond
repurchase agreements and bills to resupply market liquidity.
   Traders had seen the crunch as a signal from the PBOC to the
banking system to start reining in riskier forms of credit
growth, but Beijing does not want to subject the Chinese economy
to too much stress. 
    As a result, short-term rates have returned to accomodative
territory around 3 percent, and traders expect them to stay
there for the near future.
    The volume-weighted average for the benchmark seven-day repo
contract was 3.6070 percent at midday, down over
10 basis points from Tuesday's close. 
    The overnight repo also declined slightly to
2.9657 from 3.0113 percent, while the 14-day tenor lost 2 bps to
3.9791 percent.
    The curve for interest rate swaps (IRS) 
based on the seven-day repo has been flattening out and rising
steadily across the board, indicating general market
expectations for tightening liquidity and generally higher
borrowing costs going forward. 
    Markets do not yet appear to be pricing in an adjustment to
official policy rates in either direction. Two-year IRS
 based on the one year yuan deposit rate are trading
around 2.9 percent. Since deposit rates are usually adjusted in
increments of 25 bps, this implies markets are not expecting
susbtantial tightening or loosening via interest rates for the
time being.
    However, some economists, looking at disappointing export
figures from June and the apparent weakness of the wider
financial system, are now predicting the PBOC will move to cut
reserve requirement ratios in the fourth quarter, injecting
long-term base money supply. Many economists expect China's
economic growth rate to continue to slow in 2014, with some
forecasting growth as slow as 6.9 percent.      
                                 Current  Prev close  Change
                                       (pct)           (bps)  
7-day repo         3.6070     3.7139    -10.69
7-day SHIBOR           3.5960     3.7060    -11.00 
 Note: Repo rate is weighted average.

    - CHINA MONEY-Tighter interbank regulation seen after cash
    - Collapse in China bond volumes exposes market's seamy side
    - China reform push means June turmoil may be just the
    - External liquidity tracker: Collapse in FX purchases 
hurts liquidity in May
    - Impact of maturing central bank bills and repos GRAPHIC:
    - Chinese government bond curve flattens on liquidity
squeeze, growth concerns GRAPHIC:
    - China's interest-rate swap curve is inverted on severe
liquidity squeeze GRAPHIC:
    - China corporate bond spreads have narrowed slightly 
    - Hot money tracker: Hot money inflows have returned in
2013, boosting liquidity GRAPHIC:

 (Editing by Eric Meijer)

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