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China key money rate falls; poised for more easing
April 27, 2012 / 6:36 AM / 5 years ago

China key money rate falls; poised for more easing

* Liquidity conditions improve but not ample
    * Coming reserve demand keeps money rates high
    * Less maturing PBOC bills in coming weeks

    By Chen Yixin and Pete Sweeney	
    SHANGHAI, April 27 (Reuters) - China's key short-term money
rate fell slightly on Friday as liquidity improved after banks
completed setting aside money to meet month-end demand.	
    Bank need cash to comply with mandated loan-to-deposit
ratios that are assessed at the end of every month and to
provide for cash withdrawals from retail customers ahead of
public holidays on Monday and Tuesday.	
    But right after the holiday, banks will begin again to set
aside cash to meet reserve requirements for increased deposits
at the end of May, although traders said they expect short-term
demand to slacken by the second week of the month.	
    Liquidity is set to remain relatively tight in the
medium-term because of declining volumes of maturing central
bank bills and repos, which ordinarily inject cash into the
system, traders said.	
    The amount of PBOC bills and repos scheduled to mature in
May dropped 41 percent from April to 236 billion yuan ($37.42
billion).	
    "Money conditions have improved, they are not very tight,"
said a dealer at a Chinese bank in Shenzhen. "But if the central
bank does not cut the reserve requirement ratios or does a
reverse repo, money rates are unlikely to fall much."	
    The expected shortage of cash coupled with increasing signs
of a slowing economy has led to expectations that the central
bank will ease reserve requirements. Beijing, however, has
remained wary of premature easing in the face of sustained
inflation. 	
    The weighted average of the benchmark seven-day repo rate
 fell to 3.8800 percent at 0631 GMT from Thursday's
close of 3.9913 percent, while the 14-day repo rate
 inched up to 4.0600 percent from 4.0495 percent.	
    Chinese interest rate swaps were largely unchanged as the
market does not believe the PBOC will cut interest rates any
time soon.	
    The benchmark five-year IRS had edged down 1
basis point to 3.37 percent, while the one-year IRS 
fell 2 bps at 3.20 percent.  	
                                  Current  Prev close  Change
                                       (pct)           (bps)  
 7-day repo                       3.8808   3.9913     - 11.05
 7-day SHIBOR                     3.8725   3.9708     -  9.83
  Note: Repo rate is weighted average.
 	
($1 = 6.3060 Chinese yuan)	
	
 (Editing by Ramya Venugopal)

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