June 2, 2017 / 8:51 AM / 3 months ago

China's money rates fall on cash injection, adequate liquidity

    SHANGHAI, June 2 (Reuters) - China's primary money rates
fell marginally for the week after the central bank made a net
cash injection into the system and pledged more funds through
other liquidity tools in early June. 
    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 2.9888
percent, only 0.23 basis points lower than the previous week's
closing average rate. 
    Money supply and demand in the market were balanced but with
a tightening bias, traders said. 
    One trader at a Chinese bank based in Shanghai said the
central bank was closely monitoring the market to ensure that
cash conditions were at "just adequate" levels.
    This week, the People's Bank of China (PBOC) made a net
injection of 30 billion yuan ($4.40 billion) through its open
market operations, up from a net drain of 30 billion yuan a week
earlier.
    Many market participants said even though the cash injection
through reverse repos this week was not huge, the authorities
has sent a clear signal through different channels to allay 
worries about cash conditions this month ahead of the PBOC's
quarterly macro-prudential assessment (MPA).
    The central bank sent an advance notice late last week that
it would inject funds through its medium-term lending facility
(MLF) in early June, Financial News, a central bank-owned
publication quoted the PBOC as saying.
    Three batches of MLF loans are due to mature this month,
with a total volume of 431.3 billion yuan, according to Reuters
calculations based on official data from the central bank. 
    A batch of six-month tenure 151 billion yuan MLF loans is
due to mature next Tuesday, while another batch of one-year 73.3
billion yuan via such loans will mature the following day.
    The publication also said in a front page commentary on
Thursday that adopting measures to stabilise expectations for
financial markets and boost confidence is a good idea at a time
when investor confidence was "relatively fragile".
    "And it is more important to let the market understand that
the Chinese economy has showed good and stable momentum, which
would provide a solid base for stabilising development in the
future," the paper said.
    CITIC Securities said in a note that they did not expect
liquidity to become "overly tight" this month.
    "Although factors including MPA checks would still weigh on
the market, the market rates should not have sharp fluctuations
as seen in mid-March," it said.
    Some analysts said the central bank was likely to raise
short- and medium-term market rates this month amid expectations
of a U.S. interest rate increase.
    In March, after the Fed raised U.S. rates, the PBOC raised
short-term interest rates in what economists said was a bid to
stave off capital outflows and keep the yuan stable.

Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.8264      2.6805      +14.59                     0.00
                                                                     
                                                                     
 Seven-day        2.9888      2.9253      +6.35                      0.00
                                                                     
                                                                     
 14-day           3.9223      3.8595      +6.28                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.3500      5.3100      -196.00                    840,856.9
                                                                     0
                                                                     
 Seven-day<CN7DR  3.9500      4.7700      -82.00                     70,813.40
 PO=SS>                                                              
 14-day           4.2000      4.4050      -20.50                     7,275.90
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.8000      2.6500      +15.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.4400      3.4000      +4.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.9100      3.8500      +6.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.7953      2.6525      +14.28                     
                                                                     
 Seven-day        2.8840      2.8660      +1.80                      
                                                                     
 Three-month      4.6012      4.5779      +2.33                      
                                                                     
 
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=        3.8100               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 = 6.8144 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by
Jacqueline Wong)
  

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