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REFILE-Key China money rate slumps, liquidity remains ample
May 30, 2012 / 6:27 AM / 6 years ago

REFILE-Key China money rate slumps, liquidity remains ample

(Refiles to fix typo to year in third paragraph)	
    * Seven-day rate falls 24 basis points to near 13-month low
    * But market players see little space for further decline
    * Spread between one-day and seven-day rates narrows

    By Chen Yixin and Gabriel Wildau	
    SHANGHAI, May 30 (Reuters) - China's key money rate slumped
by 24 basis points on Wednesday, hovering near a 13-month low,
though traders now see little room for a further decline.	
    In addition to plentiful liquidity in the market, some
dealers said Wednesday's rates were influenced by an unusually
low opening, which sometimes causes other dealers to follow
suit.	
    The benchmark weighted-average seven-day bond repurchase
rate slumped by 24.19 basis points (bps) to 2.3437
percent, just above its May 24 close of 2.2332 percent, which
was the lowest in over a year.	
    Early in the session, one seven-day repo transaction was
registered at 1.9 percent, far below Tuesday's weighted-average
close of 2.5856 percent. 	
    Dealers said such anomalous transactions are sometimes the
result of two banks agreeing to repo loans of non-standard
maturity. The China Foreign Exchange Trading System (CFETS), the
trading platform for China's interbank market, quotes
transaction prices for one- and seven-day repos, but nothing in
between.	
    "Actually, the money situation has not changed much, it is
still ample," said a dealer at a Chinese bank in Shenzhen. "When
liquidity remains ample, the opening quote could lead our
quotes."	
    But several dealers said they did not expect a further
decline in the seven-day rate as the spread with overnight repos
and seven-day repos has narrowed. 	
    The gap between one-day and seven-day money
rates is around 43 basis points, compared to 67 bps on Tuesday.
The average spread in 2012 is 68 bps, suggesting that the
current spread has little space to narrow further.	
    Some dealers said the central bank had showed its intention
to keep the market liquidity relatively ample due to slowing
domestic economic growth.	
    "The central bank intends to keep an abundance of money in
the market, otherwise, it would drain more funds via the open
market," said an Asian bank dealer in Shanghai.	
     China's central bank drained 50 billion yuan ($7.88
billion) from the money markets through 28-day bond repurchase
agreements on Tuesday, guaranteeing a net drain of at least 27
billion yuan from the market this week. 	
    The People's Bank of China will use open market operations
to balance market funds and avoid excess liquidity, but the
impact should be limited, traders said.	
     The 14-day repo rate fell slightly to 2.5864
percent at midday, while the overnight rate inched
up 0.14 bps to 1.9132 percent.          	
        	
                                  Current  Prev close  Change
                                       (pct)           (bps)  
 7-day repo                       2.3437   2.5856     -24.19
 7-day SHIBOR                     2.3217   2.5733     -25.16
  Note: Repo rate is weighted average.
 	
($1 = 6.3345 Chinese yuan)	
	
 (Editing by Ed Lane)

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