April 20, 2018 / 4:21 AM / 3 months ago

China money rates move higher despite cut in bank reserve requirements

    SHANGHAI, April 20 (Reuters) - China's primary money rates
ended the week higher despite net liquidity injections and a
surprise cut in banks' reserve requirements by the country's
central bank, as demand for cash remained strong.
    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 2.8851
percent around midday on Friday.
    That was up 18.9 basis points from the previous week's
closing average rate of 2.6966 percent.
    The Shanghai Interbank Offered Rate (SHIBOR) for the same
tenor rose to 2.8930 percent, up 9.5 basis points from the
previous week's close.
    The one-day or overnight rate stood at 2.7838 percent and
the 14-day repo stood at 4.8299 percent.
    On Tuesday, the People's Bank of China (PBOC) unexpectedly
announced it would cut requirements for the amount of cash banks
hold as reserves. Reserve requirement ratios (RRR) -- currently
17 percent for large institutions and 15 percent for smaller
ones -- will be cut by 100 basis points on April 25.
    The move jolted markets, prompting a jump in benchmark
Chinese Treasury futures. On Wednesday, the price of 10-year
Chinese Treasury futures for June delivery, the most traded
contract, rose as high as 95.775, its highest since September. 
    On Friday, the same contract was trading lower at 95.135.
    Analysts at Huachuang Securities said in a note that despite
a large net injection on Thursday, demand for cash for tax
payments and government bond issuance meant that market
liquidity remained tight.
    "The boost to market sentiment from the RRR cut has seen
some weakening. Treasury futures started (the week) low and are
continuing low."
    For the week, the PBOC injected 470 billion yuan through
open market operations. It was the first time since mid-March
that the central bank had made a net injection of funds. On
Monday, the central bank raised interest rates on 14-day reverse
bond repurchase agreements by 5 basis points, matching a hike in
the 7-day tenor in March. 
    In addition, the central bank lent 367.5 billion yuan to
financial institutions on Tuesday through one-year medium-term
lending facility (MLF) loans. The PBOC also raised the interest
rate on one-year MLF loans by 5 basis points.
    Analysts said that this week's rate rises had little market
effect, as they had been priced in following the March hike.
    The PBOC raised the seven-day rate in March, following the
U.S. Federal Reserve Bank's March 21 move, seen by markets as a
symbolic reminder that Beijing is keeping an eye on global
market developments.
    
 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.7838      2.8226      -3.88                      0.00
                                                                     
                                                                     
 Seven-day        2.8851      2.9890      -10.39                     0.00
                                                                     
                                                                     
 14-day           4.8299      4.6396      +19.03                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        5.0450      5.0600      -1.50                      191,165.6
                                                                     0
                                                                     
 Seven-day<CN7DR  4.4900      5.0800      -59.00                     14,140.40
 PO=SS>                                                              
 14-day           4.1850      4.4000      -21.50                     3,497.90
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.9000      2.8000      +10.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.5400      3.5000      +4.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           5.0000      4.5000      +50.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.7470      2.7330      +1.40                      
                                                                     
 Seven-day        2.8930      2.8840      +0.90                      
                                                                     
 Three-month      4.0170      4.0500      -3.30                      
                                                                     
 
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=        3.5300               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:

    
 (Reporting by Andrew Galbraith
Editing by Jacqueline Wong)
  
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