February 9, 2018 / 3:17 AM / 3 months ago

UPDATE 2-China c.bank releases nearly 2 trln yuan in temporary liquidity

    * C.bank also releases 450 bln yuan via targeted RRR cut
    * Expects liquidity conditions to remain stable
    * Primary money rates edge up

 (Adds primary money rates)
    BEIJING, Feb 9 (Reuters) - China's central bank said on
Friday it has released temporary liquidity worth almost 2
trillion yuan ($316.28 billion) to satisfy cash demand before
the long Lunar New Year holidays.
    The People's Bank of China (PBOC) had announced in December
that it would allow some commercial banks to temporarily keep
less required reserves to help them cope with the heavy demand
for cash ahead of the festivities, which begin later next week.

    While liquidity always tightens at this time of year,
China's financial markets and policymakers have been more
sensitive to risks of a cash squeeze since authorities began a
clampdown on riskier forms of financing in early 2017, which has
led to occasional spikes in money market rates and bond yields. 
  
    Commercial banks have been using the contingent reserve
allowance (CRA) since mid-January, and nearly 2 trillion yuan in
temporary liquidity has been released, the central bank said on
its official microblog.
    "After the Spring Festival, the maturity of the CRA will be
in line with the pace of cash withdrawal and liquidity of the
banking system will remain reasonably stable," it said.
    In addition, the central bank said it had released 450
billion yuan in long-term liquidity via a previously announced
cut in the amount of cash some Chinese banks must hold in
reserves.  
    The reduction in the reserve requirement ratio (RRR),
announced last September, became effective on Jan. 25.
    The cut reduced reserve requirements for banks that meet
certain criteria for lending to small business and the
agricultural sector, and is intended to support the development
of "inclusive" financial services, the PBOC has said.

    Earlier on Friday, the PBOC said it will skip open market
operations for the 12th straight trading day as liquidity levels
in the banking system were "relatively high".
    Over the 12-day hiatus, maturing reverse repos have drained
a total of 1.37 trillion yuan from the system, according to
Reuters calculations based on official central bank data.
    Traders agreed cash conditions were ample following the
liquidity measures from the central bank. One trader at a
Chinese bank said she had not faced difficulties in borrowing
funds to square the books.
    China's primary money rates were nonetheless higher than
last week as the Lunar New Year approaches.
    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 2.8049
percent, 6 basis points higher than the previous week's closing
average rate. 
    The Shanghai Interbank Offered Rate (SHIBOR) for same tenor
rose to 2.9180 percent, 13 basis points above last Friday's
close.
    "Seven-day money now crosses over the holiday, so it's
reasonable for rates to be a bit higher," said a trader at a
regional bank in Shanghai.
    The one-day or overnight rate stood at 2.5831 percent and
the 14-day repo stood at 3.8751 percent.
    
    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5831      2.5621      +2.10                      0.00
                                                                     
                                                                     
 Seven-day        2.8049      2.9065      -10.16                     0.00
                                                                     
                                                                     
 14-day           3.8751      3.8875      -1.24                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.7900      2.9550      +83.50                     167,299.5
                                                                     0
                                                                     
 Seven-day<CN7DR  4.4600      4.1900      +27.00                     26,476.40
 PO=SS>                                                              
 14-day           4.2350      4.1750      +6.00                      31,693.10
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5900      2.5700      +2.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.9500      2.9000      +5.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.9000      3.9200      -2.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.5890      2.5720      +1.70                      
                                                                     
 Seven-day        2.9180      2.9040      +1.40                      
                                                                     
 Three-month      4.6936      4.6960      -0.24                      
                                                                     
 
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 = 6.3236 Chinese yuan)

 (Reporting by Beijing Monitoring Desk and Kevin Yao; Additional
reporting by Winni Zhou and Andrew Galbraith in SHANGHAI;
Editing by Kim Coghill & Shri Navaratnam)
  
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