November 30, 2018 / 7:34 AM / 11 days ago

China's money rates rise at month-end cash demand

    SHANGHAI, Nov 30 (Reuters) - China's primary money rates
rose only marginally this week as month-end cash demand was
somewhat offset by ample liquidity in the financial system.
    The People's Bank of China (PBOC) skipped reverse repos for
the entire month, not making any fresh cash injections or
withdrawals in the past 26 trading days, as liquidity level was
"relatively high" as the government stepped up spending towards
month-end, it said in a statement on Friday.
    "Liquidity was quite ample, and market sentiment was also
very stable," said a trader at a Chinese bank.
    "There is no difficulty for banks squaring books and going
through the month-end this time."
    Short-term borrowing costs usually rise at the end of the
month as companies and financial institutions have to shore up
their cash positions to make payments and meet certain
administrative requirements, which drain funds from the
interbank market.
    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 2.6739
percent on Friday afternoon.
    It was about 10 basis points higher than the previous week's
closing average rate of 2.5741 percent.
    A second trader at a Chinese bank said the upward pressure
on market rates will likely be temporary given the seasonal
effects will fade soon.
    The lengthy suspension of the PBOC's open market operations
fueled speculations of further monetary easing in China, as some
downside pressure on the yuan was likely alleviated following
the U.S. Federal Reserve's apparent shift this week to a more
cautious monetary policy stance.
    Fed chair Jerome Powell's said on Wednesday that U.S.
interest rates were just below neutral, which investors took as
a sign the rate hike-cycle was nearing its end.
    "Obviously the Fed's dovish shift will give the PBOC more
leeway in its monetary policy," said Ken Cheung, senior Asian FX
strategist at Mizuho Bank in Hong Kong, adding divergence in
monetary policy between the Fed and the PBOC has contributed to
yuan weakness over the past few months.
    Cheung expected the most likely option for the PBOC is to
lower its medium-term lending facility (MLF) rate, which now
stands at 3.3 percent for one-year loan.
    China's stubbornly weak credit growth has spurred talk of
its first cut in benchmark lending rates in three years, but
economists and policy insiders say concerns about a potential
knock to its currency will likely give the central bank pause.


    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.6359      2.2379      +39.80                     0.00
                                                                     
                                                                     
 Seven-day        2.6739      2.6449      +2.90                      0.00
                                                                     
                                                                     
 14-day           2.6723      2.6066      +6.57                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.9750      3.4450      +53.00                     211,563.8
                                                                     0
                                                                     
 Seven-day<CN7DR  3.0950      3.1050      -1.00                      38,713.40
 PO=SS>                                                              
 14-day           2.8900      2.9150      -2.50                      4,617.20
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.6500      2.2600      +39.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.8000      2.7800      +2.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           2.8000      2.7000      +10.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.6420      2.2620      +38.00                     
                                                                     
 Seven-day        2.6690      2.6500      +1.90                      
                                                                     
 Three-month      3.1130      3.1094      +0.36                      
                                                                     
 
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=        0.0000               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 Winni Zhou and John Ruwitch
Editing by Shri Navaratnam)
  
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