November 16, 2018 / 9:36 AM / 8 months ago

China money rates rise on cash demand, but loosening seen ahead

    SHANGHAI, Nov 16 (Reuters) - China's primary money rates
rose this week on higher cash demand for mid-month corporate tax
payments, and as the central bank made no net cash injections or
withdrawals into money markets for a second straight week.
    Despite the rise in rates, a well-received finance ministry
auction put pressure on bond yields on Friday amid growing
expectations of weaker growth and further loosening ahead.
    At the same time, the People's Bank of China (PBOC) on
Friday struck the latest note in a steady drumbeat of official
statements encouraging liquidity support for private firms. It
told banks to make full use of incentives for lending to them,
and to take measures to maintain borrowers' sustainability.

    On Friday afternoon, 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 2.6024 percent, or 4.92 basis points higher than the
previous week's closing average rate of 2.5532 percent.
    The Shanghai Interbank Offered Rate (SHIBOR) for the same
tenor stayed flat at 2.6290 percent, up 3 basis points from the
previous week's close of 2.5990 percent. 
    The one-day or overnight rate stood at 2.3400 percent and
the 14-day repo stood at 2.4459 percent.
    A trader at a regional bank in Shanghai said liquidity
conditions tightened on Friday following a 50-year bond auction
by China's finance ministry that attracted
stronger-than-expected demand.
    "Yields fell a lot, and traders came in chasing them," she
    The PBOC's latest encouragement to lenders came after
China's credit growth slowed sharply in October even as the
central bank kept up cash injections into the financial system
to ensure what it calls "reasonably ample" liquidity.

    But while encouraging lending, the PBOC made no net
injections or drains through reverse repos for a second week.
This had not happened since the central bank began daily open
market operations in February 2016.
    "I think the worries are more on the credit side," said a
Shanghai-based trader at an asset management firm. "The
interbank market has enough liquidity."
    Regulators' difficulties in translating ample system
liquidity into lending and supporting the economy have sparked
speculation the PBOC could resort to bolder loosening moves,
including a possible benchmark rate cut, to combat slowing

Key money rates at a glance:
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  rate (%)                                           
 Interbank repo market
 Overnight        2.3400      2.3361      +0.39                      0.00
 Seven-day        2.6024      2.5753      +2.71                      0.00
 14-day           2.4459      2.4280      +1.79                      0.00
 Shanghai stock exchange repo market
 Overnight        2.6100      2.6350      -2.50                      639,992.4
 Seven-day<CN7DR  2.7000      2.6600      +4.00                      59,528.20
 14-day           2.7050      2.6700      +3.50                      14,794.10
 PBOC Guidance Rates
 Overnight        2.3500      2.3600      -1.00                      
 Seven-day        2.6100      2.6200      -1.00                      
 14-day           2.6000      2.6000      +0.00                      
 Overnight        2.3450      2.3390      +0.60                      
 Seven-day        2.6290      2.6290      +0.00                      
 Three-month      3.0230      3.0100      +1.30                      
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
 2 yr IRS based on 1   CNABAD2YF=        0.0000              -1.5
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        3.2100               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
 Overview of China financial market data:

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