March 10, 2017 / 5:43 AM / 5 months ago

China's money rates fall; liquidity may tighten by month end

7 Min Read

    SHANGHAI, March 10 (Reuters) - Primary money market rates in
China fell for the week on Friday due to few signs of pressure
on liquidity, prompting the central bank to skip its open market
operations for two straight days.
    The volume-weighted average rate of the benchmark seven-day
repo traded in the interbank market, a key
indicator of general liquidity, was 2.4889 percent, more than 12
basis points below the previous day's closing average rate. 
    For the week, the rate was around 1 basis point down from
last Friday's average close.
    Money supply and demand were balanced for the week, even
"with some slight loosening bias" in the market, traders said. 
    A Shanghai-based trader at a Chinese bank said market
sentiment has not worsened after the central bank skipped its
open market operations for two straight days this week.
    The People's Bank of China (PBOC) skipped reverse repurchase
agreements operations for a second straight day on Friday in
order to keep liquidity stable in the banking system.
    "There are a few factors improving the liquidity recently,"
the People's Bank of China (PBOC) said in a statement on its
website.
    The PBOC drained a net 110 billion yuan ($15.92 billion) for
the week, compared with a net drain of 280 billion yuan a week
earlier.
    In medium-term lending facility, the central bank lent 194
billion yuan of such loans on Wednesday, with a same amount of
them maturing on the day. 
    The MLF is a supplementary policy tool that the PBOC uses to
manage liquidity conditions and medium-term interest rates in
the banking system and money markets.
    Liquidity may tighten further as central bank's quarterly
assessment is approaching, some market participants and analysts
noted.
    Reuters reported on Thursday that China's central bank plans
to tighten capital adequacy requirements by scrapping an
intermediate category while assessing some commercial banks
during the current quarter citing sources.
    Analysts said the move is likely to create uncertainty and
pressure liquidity by the end of the month.
    Separately, Zhou Xiaochuan, governor of the PBOC said on
Friday that China's monetary policy is prudent, neutral and the
central bank has many tools at its disposal. 
    China will not deliberately seek to include its bond market
in global indexes, he added.
    The Shanghai Interbank Offered Rate (SHIBOR) for the
seven-day tenor fell to 2.6550 percent, 0.40 basis point from
the previous close.
    For the week, the rate was also down 0.40 basis point.
    
    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.3533      2.3844      -3.11                      0.00
                                                                     
                                                                     
 Seven-day        2.4889      2.6120      -12.31                     0.00
                                                                     
                                                                     
 14-day           3.1680      3.2497      -8.17                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.9300      2.8200      +11.00                     198,501.8
                                                                     0
                                                                     
 Seven-day<CN7DR  2.9000      2.6550      +24.50                     48,170.70
 PO=SS>                                                              
 14-day           3.0100      2.9000      +11.00                     19,488.10
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.3700      2.3900      -2.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.8000      3.0000      -20.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.3000      3.4500      -15.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.4019      2.4076      -0.57                      
                                                                     
 Seven-day        2.6550      2.6590      -0.40                      
                                                                     
 Three-month      4.2942      4.2943      -0.01                      
                                                                     
 
KEY INTEREST RATE SWAPS:
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
                                                 rate*
 2 yr IRS based on 1   CNABAD2YF=        0.0000                 0
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        4.0000               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 = 6.9083 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Vyas
Mohan)
  

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