August 18, 2017 / 7:56 AM / in 3 months

China's money rates rise as corporate tax payments keep liquidity tight

    SHANGHAI, Aug 18 (Reuters) - China's primary money rates
rose for the week as a central bank-led net cash injection was
offset by seasonal factors keeping liquidity conditions tight.
    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 2.8524
percent on Friday, 1.5 basis points higher than the previous
week's closing average rate of 2.8373 percent. 
    The seven-day repo rate surged to a high of 6.5 percent at
one point on Wednesday.
    Traders said cash conditions suddenly became tight this
week, pressured by factors including corporate tax payment and
banks' reserve requirement contributions, offseting some of the
impact from central bank's liquidity support.
    In the open market operations, the People's Bank of China
injected a net 110 billion yuan ($16.47 billion) via its reverse
bond repurchase agreements for the week, compared with a net
drain of 30 billion yuan a week earlier. 
    The central bank also injected 399.5 billion yuan into the
financial system via one-year medium-term lending facility (MLF)
loans on Tuesday, compared with a maturity of 287.5 billion yuan
of such loans on the same day.
    Some market players, who found it easy to square their books
last week, said they had to borrow money till late into the
trading day this week. 
    Market watchers said spikes in money rates this week was
mainly linked to corporate tax payment, though cash conditions
were also impacted by low excess reserves rates at commercial
banks.
    Falls in the excess reserves rates have weakened the ability
of banks to lend money to others, said Li Qilin, an analyst at
Lianxun Securities, suggesting the lowered reserves have forced
some banks to hold more cash instead of lending to their peers
and other financial institutions.
    According to Li's forecast the excess reserves rates were at
around 1.1-1.2 percent in July, down from an average of 2
percent in 2016.
    The Shanghai Interbank Offered Rate (SHIBOR) for same tenor
was fixed at 2.8940 percent on Friday, more than 2 basis points
from the previous week's close of 2.8725.
    The one-day or overnight rate also showed an upward movement
this week. 

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.8343      2.8650      -3.07                      0.00
                                                                     
                                                                     
 Seven-day        2.8524      2.8879      -3.55                      0.00
                                                                     
                                                                     
 14-day           4.2305      4.2942      -6.37                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.3000      5.3250      -202.50                    841,758.4
                                                                     0
                                                                     
 Seven-day<CN7DR  3.8100      4.8300      -102.00                    83,789.30
 PO=SS>                                                              
 14-day           4.0250      4.5200      -49.50                     13,686.00
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.8500      2.8400      +1.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.4400      4.6000      -116.00                    
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.3000      4.5500      -25.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.8355      2.8352      +0.03                      
                                                                     
 Seven-day        2.8940      2.8927      +0.13                      
                                                                     
 Three-month      4.3440      4.3417      +0.23                      
                                                                     
 
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=        3.7100               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 = 6.6772 Chinese yuan renminbi)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Shri
Navaratnam)
  

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