June 23, 2017 / 7:31 AM / 2 months ago

China's money rates fall, thanks to improved cash conditions

    SHANGHAI, June 23 (Reuters) - China's primary money rates
fell this week, which traders credited to improved cash
conditions in the interbank market in spite of the central
bank's net cash drain by open market operations.
    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 2.8058
percent on Friday, nearly 15 basis points lower than the
previous week's closing average rate of 2.9513 percent. 
    Falls in money rates stemmed from rising fiscal
expenditures, which eased liquidity stress caused by seasonal
cash demand and maturing reverse repos, according to market
players.
    "Fiscal expenditures were increasing towards the month-end
to counter maturing reverse repos, liquidity in the banking
system was staying at a relatively high level," the People's
Bank of China (PBOC) said in a statement.
    In open market operations (OMO), the PBOC drained a net 60
billion yuan ($8.77 billion) through reverse bond repurchase
agreements this week, compared with last week's 410 billion yuan
net injection, the most since mid-January moves to meet Lunar
New Year holiday cash demands.
    On Wednesday, the central bank started draining cash via
reverse repos for the first time in two weeks. On Friday, it
skipped an OMO for the first time since late May, but drained 50
billion yuan from the market, via maturing repos.
    Traders said the liquidity drain did not affect market
sentiment as money conditions were balanced. A trader at a
Chinese bank said most market participants started preparing for
the "Macro Prudential Assessments" (MPA) of lenders early this
time as June is known as a sensitive period.
    Cash conditions are traditionally tight in June, and
memories remain fresh of a June 2013 crunch that sent money
rates soaring and spooked global markets.
    Market watchers said authorities were paying close attention
to cash conditions to avoid creating any fresh systemic risks
amid the country's deleveraging campaign and tightened
regulations.
    "Regulatory adjustments targeting 'financial leverage' will
likely be a dynamic process, rather than one that follows a
strict pre-set path," China International Capital Corp said in a
note this week.
    Financial News, a PBOC-owned publication, reported on Friday
that financial institutions had shown significantly increased
confidence to smoothly go through the month-end.
    "The central bank has provided major commercial banks with
sufficient liquidity through tools including medium-term lending
facility and reverse repos in June," the newspaper said, citing
the PBOC as saying liquidity was "ample" and market expectations
"stable".
    Longer-term interest rates also eased this week.
    The Shanghai Interbank Offered Rate (SHIBOR) for one-month
tenor fell to 4.5890 percent on Friday, compared
with 4.6990 percent a week earlier, the highest since April
2015.
    The three-month rate fell through the week to
4.6300 percent on Friday, down from 4.7613 percent on June 16.

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.7640      2.8311      -6.71                      0.00
                                                                     
                                                                     
 Seven-day        2.8058      2.9589      -15.31                     0.00
                                                                     
                                                                     
 14-day           4.1685      4.2112      -4.27                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.9050      4.1000      -19.50                     348,753.6
                                                                     0
                                                                     
 Seven-day<CN7DR  4.6100      4.7550      -14.50                     29,216.90
 PO=SS>                                                              
 14-day           4.4000      4.8750      -47.50                     5,972.10
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.8000      2.8500      -5.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.0000      3.4000      -40.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.3000      3.9800      +32.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.8100      2.8690      -5.90                      
                                                                     
 Seven-day        2.9360      2.9432      -0.72                      
                                                                     
 Three-month      4.6300      4.6521      -2.21                      
                                                                     
 
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=        3.7500               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 = 6.8391 Chinese yuan)

    
 (Reporting by Winni Zhou and David Stanway; Editing by Richard
Borsuk)
  

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