January 19, 2018 / 9:03 AM / 3 months ago

China's money rates inch up amid taxes, expectations of tight policy

    SHANGHAI, Jan 19 (Reuters) - China's primary money rates
edged up again this week, lifted by strong demand for cash from
financial institutions and by market expectations that policy
will remain tight after data showed robust fourth-quarter
economic growth.   
    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 2.9224
percent, 1.8 basis points higher than the previous week's
closing average rate of 2.9043.
    The Shanghai Interbank Offered Rate (SHIBOR) for the same
tenor rose to 2.8910 percent, or 2.7 basis points higher than
the previous week's close.
    The one-day or overnight rate stood at 2.8582 percent and
the 14-day repo at 4.3084 percent.
    Rates moved higher even as the People's Bank of China (PBOC)
injected a net 590 billion yuan ($92.29 billion) into money
markets this week, after a net injection of 40 billion yuan a
week earlier. 
    The injections come as financial institutions sought cash to
make mid-January tax payments for the October-December period,
and work to meet reserve requirements.
    Faster-than-expected economic growth in 2017's final
quarter, driven by an export recovery, helped to ease concerns
that Beijing's curbs on industrial capacity and credit expansion
would damage China's prospects. Gross domestic product grew 6.8
percent in October-December, unchanged from the previous
quarter.
    Against the backdrop of strong growth, economists widely
expect authorities to maintain a bias toward tighter monetary
conditions and controlling financial risks. 
    Iris Pang, Greater China economist at ING, said in a note 
she expects the PBOC to raise short-term rates three times in
2018, following the U.S. Federal Reserve. But the central bank
would likely leave benchmark rates untouched, she said in an
emailed response to questions.
    "The interest rate liberalisation process has reached a
stage that the PBOC would only use short-term rates for policy
tools," she said, noting the improved transmission of interbank
rates to retail bank lending and deposit rates. "There is no way
that the central bank goes backward to benchmark rates again."

 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.8582      2.7814      +7.68                      0.00
                                                                     
                                                                     
 Seven-day        2.9224      2.9083      +1.41                      0.00
                                                                     
                                                                     
 14-day           4.3084      4.4449      -13.65                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.5150      3.9950      -48.00                     763,314.2
                                                                     0
                                                                     
 Seven-day<CN7DR  3.9600      4.2000      -24.00                     58,993.00
 PO=SS>                                                              
 14-day           4.4000      4.6550      -25.50                     8,569.50
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.8800      2.7900      +9.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.4000      3.4900      -9.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.4000      4.5000      -10.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.8360      2.7655      +7.05                      
                                                                     
 Seven-day        2.8910      2.8780      +1.30                      
                                                                     
 Three-month      4.7115      4.7044      +0.71                      
                                                                     
 
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=        4.0200               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 = 6.3931 Chinese yuan)

    
 (Reporting by Andrew Galbraith and Winni Zhou; Editing by
Richard Borsuk)
  
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