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China money rates up on tightening rumours
May 30, 2013 / 4:52 AM / in 5 years

China money rates up on tightening rumours

By Pete Sweeney
    SHANGHAI, May 30 (Reuters) - China's money rates rose across
the board on Thursday as traders said they were increasingly
confused by market direction.
    "Today's rates are really weird," said a dealer at a major
Chinese bank in Beijing. "We can feel something is going on."
    The weighted average of the benchmark seven-day repo
 jumped 45 basis points to 4.16 percent around
midday, up from 3.71 percent on Wednesday.
    The shortest overnight rate jumped 35 basis
points to 3.40 percent from 3.05 percent.
    The 14-day rate gained 28 basis points to
4.05 percent from Wednesday's 3.77 percent.
    Traders had expected rates to be relatively high at the end
of the month given upcoming tax payments and end-of-month
regulatory tests of deposit ratios, both of which cause banks to
sequester cash. 
    But traders say the current environment has grown
unpredictable. 
    A private purchasing managers survey last week showed
China's industrial activity shrank for the first time in seven
months in May, causing economists to question whether China will
meet its 7.5 percent GDP growth target this year. Traders
speculated that Beijing might even cut interest rates before the
end of the year. 
    However, at the same time energetic non-bank forms of credit
have shown signs of unhealthy growth, channeling funds into real
estate and currency speculation instead of business investment.
So far Beijing has relied on administrative methods to arrest
the trend, but it also has the option of tightening the cash
supply in the interbank market.
    Traders say market rumours are starting to circulate that
Beijing may be turning toward a tighter policy stance.
    The bank reintroduced 3-month bills in early May, the first
sign that the bank was trying to mop up extra funds in the
market. 
    The interest rate swap (IRS) curve moved
downward and flattened out between late March and early May,
showing investors betting that the central bank would keep money
conditions relatively accomodative to support economic recovery.
 
    The curve has lifted across the board since, showing that
the market is backing away from expectations of loosening.

    
                                 Current  Prev close  Change
                                       (pct)           (bps)  
7-day repo         4.1583     3.7087     +44.96
7-day SHIBOR           4.1440     3.6700     +47.40 
 Note: Repo rate is weighted average.
   
        >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    
    MARKET DRIVERS
    - China opens new front in war as yuan speculation distorts
export data 
    - China seeks to curb speculative flows without monetary
tightening 
    - Markets spin on liquidity switches 
    - Non-bank financing to rise in 2013 
    
    DATA POINTS
    - External liquidity tracker: FX purchases are main source
if liquidity injection in recent months GRAPHIC: r.reuters.com/das95t
    - Impact of maturing central bank bills and repos GRAPHIC: r.reuters.com/kas95t
    - Long-term Chinese govt bond yields slumped amid doubts on
growth GRAPHIC: r.reuters.com/jas95t
    - China's interest-rate swap curve has flattened GRAPHIC: r.reuters.com/has95t
    - China corporate bond spreads have narrowed slightly 
GRAPHIC: r.reuters.com/mas95t
    - Hot money tracker: Hot money inflows have returned in
2013, boosting liquidity GRAPHIC: r.reuters.com/was95t
    
   >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>   

 (Editing by Kim Coghill)

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