February 2, 2018 / 8:11 AM / in 7 months

China's money rates fall as cash conditions stay loose

    SHANGHAI, Feb 2 (Reuters) - China's primary money rates fell
this week as cash conditions were loose with few signs of
liquidity stress, even after the central bank drained the most
cash in nearly two years.
    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 2.7424
percent on Friday afternoon. That is nearly 18 basis points
lower than the previous week's closing average rate of 2.9194
percent. 
    The People's Bank of China (PBOC), noting the banking
system's "relatively high" levels of liquidity, has refrained
from injecting cash via its open market operations for seven
consecutive trading days, starting from Jan. 25.
    In that period, there's been a net drain of 1.15 trillion
yuan ($183.46 billion) due to maturing repos, including 760
billion this week - the biggest weekly one since late February
2016.
    Traders said cash conditions were looser than expected, and
the absence of reverse repos did not affect sentiment. 
    Factors including the use of contingent reserve allowance
(CRA), which lets some banks set aside fewer official reserves
temporarily, has fueled the financial system with ample
liquidity this week, according to traders.
    The PBOC said in late December it would let some commercial
banks temporarily keep fewer required reserves to help them meet
heavy cash demand ahead of the Lunar New Year holiday.

    Gao Ting, head of China strategy at UBS Securities, said the
loosened liquidity does not mean a change in the tone of
financial regulation.
    "Money market rates will stay high ahead of the Chinese New
Year holiday, with tighter liquidity for non-bank financial
institutions (NBFIs) than for banks, as regulators are
curtailing the flow of credit from banks to NBFIs to limit
leverage," Gao said in a note.

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.4970      2.4782      +1.88                      0.00
                                                                     
                                                                     
 Seven-day        2.7424      2.7250      +1.74                      0.00
                                                                     
                                                                     
 14-day           3.8639      3.8698      -0.59                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.1150      2.7850      +33.00                     680,919.0
                                                                     0
                                                                     
 Seven-day<CN7DR  3.2600      3.1300      +13.00                     85,692.60
 PO=SS>                                                              
 14-day           3.9950      3.9850      +1.00                      11,357.20
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5200      2.5000      +2.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.8000      2.8500      -5.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.9000      3.9000      +0.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.5173      2.5154      +0.19                      
                                                                     
 Seven-day        2.7880      2.7925      -0.45                      
                                                                     
 Three-month      4.7278      4.7276      +0.02                      
                                                                     
 
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=        3.9500               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 = 6.2685 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Richard
Borsuk)
  
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