China's money rates fall on expectations of ample liquidity

* 7-day repo rate at two-week low
* 14-day repo rate at three-week low
* Reverse repos expected to support liquidity

By Chen Yixin and Gabriel Wildau
SHANGHAI, Jan 7 (Reuters) - China's money rates extended
their fall on Monday, with dealers reporting that banks are
eager to lend amid expectations that the central bank will use
reverse repos to maintain liquidity.
The PBOC surprised the market over the weekend by issuing
five-day reverse bond repurchase agreements on Saturday.

The central bank normally auctions seven-day repos on
Tuesdays and Thursdays. The unusual five-day tenor allows the
instrument to mature this Thursday, the same day as if a
seven-day reverse repo had been auctioned on Thursday last week,
when the market was closed for the New Year holiday.
The PBOC's auction was aimed at relieving the traditional
year-end liquidity squeeze caused by elevated corporate and
household cash demand around the New Year holiday.
"No matter which tenor it chooses, the central bank has
shown its intention to continue reverse repo auctions, so the
money situation should remain good," said a dealer at a Chinese
commercial bank in Shanghai.
The benchmark weighted-average seven-day bond repurchase
rate slumped 33 basis points to 3.18 percent, its
lowest level since Dec. 24 and down from 3.50 percent at
Friday's close.
The 14-day repo rate fell to 3.27 percent
from 3.37 percent, its lowest point since Dec. 17, while the
one-day repo rate dipped 5 bps to 2.14 percent.
In the rates market, interest rate swaps (IRS) fell on
Monday, with the one-year IRS falling to 3.36
percent, from Friday's close of 3.40 percent, while the
benchmark five-year IRS dipped to 3.73 percent from
3.77 percent.

Current Prev close Change
(pct) (bps)
7-day repo 3.1753 3.5040 -32.87
7-day SHIBOR 3.2000 3.6000 -40.00
Note: Repo rate is weighted average.

($1 = 6.23 Chinese yuan)

(Editing by Jacqueline Wong)