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China's money rates fall, but cash conditions may soon tighten
July 3, 2017 / 7:52 AM / 3 months ago

China's money rates fall, but cash conditions may soon tighten

    SHANGHAI, July 3 (Reuters) - China's primary money rates
fell on Monday as liquidity in the banking system remained
relatively high, but cash conditions may tighten with large
volumes of loans due to mature in the next two weeks, traders
said.
    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 2.8284
percent on Monday afternoon, nearly 7 basis points lower than
the previous day's closing average rate at 2.8936 percent. 
    China's central bank skipped open market operations for the
seventh day in a row on Monday, as liquidity levels in the
banking system were "relatively high", the People's Bank of
China (PBOC) said in an online statement.
    Traders said the short-term money supply was adequate on
Monday, with the central bank's decision to skip open market
operations having no impact on sentiment yet.
    However, a trader at a Chinese bank said such cash
conditions are unlikely to last long with large volumes of loans
from open market operations and the medium-term lending facility
(MLF) due to mature in the first half of July.
    In the first two weeks of July, maturing reverse repos are
set to drain a total 530 billion yuan ($78.08 billion). In
addition, two batches of MLF loans worth 179.5 billion yuan are
due to mature on July 13, according to Reuters calculations
based on the official data from the PBOC. 
    Others have compared current central bank operations and
liquidity situation to events in March and April, when the PBOC
skipped 13 straight sessions of open market operations.
    "If the central bank adopts the similar action this time,
not resuming open market operations before the MLF loans mature,
liquidity pressure faced by the banking system would be far
bigger than that in April," said Ming Ming, an analyst at CITIC
Securities, pointing out matured loans in early April were less
than the ones this month.
    Ming said he did not expect the central bank to change its
"not too loose, not too tight" monetary policy as regulators'
deleveraging campaign was still continuing.
    On Monday, China and Hong Kong launched a long-awaited "Bond
Connect" scheme that links China's $9 trillion bond market with
overseas investors, the latest step in Beijing's efforts to
liberalise and strengthen the country's capital markets.
    Early indications showed promise for the development of an
active debt market, with more than 2 billion yuan of bonds
purchased in the first 22 minutes of brisk trade.
    
    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.7187      2.6853      +3.34                      0.00
                                                                     
                                                                     
 Seven-day        2.8284      2.8936      -6.52                      0.00
                                                                     
                                                                     
 14-day           3.5666      3.8017      -23.51                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.9000      6.5550      -265.50                    529,385.0
                                                                     0
                                                                     
 Seven-day<CN7DR  4.0000      5.0850      -108.50                    70,951.10
 PO=SS>                                                              
 14-day           4.1300      4.4400      -31.00                     9,721.30
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.7500      2.6300      +12.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.2000      3.9000      -70.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.8000      3.8000      +0.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.7200      2.6180      +10.20                     
                                                                     
 Seven-day        2.8410      2.8455      -0.45                      
                                                                     
 Three-month      4.4857      4.5009      -1.52                      
                                                                     
 
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=        3.7400               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 = 6.7883 Chinese yuan renminbi)

    
 (Reporting by Winni Zhou and Andrew Galbraith; Editing by Sam
Holmes)
  

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