* PBOC injects money into market for 4th straight week
* Govt says to cut reverse requirements for more banks
* PBOC seen using more short-term tools to supply money
* May not need stronger monetary policy easing for now
By Lu Jianxin and Pete Sweeney
SHANGHAI, June 6 China's main money market rate
fell again this week as the central bank signalled it will
inject more liquidity into the banking system in response to
government calls to reduce the price of money to support the
slowing economy, traders said.
The government also said last week that it would lower the
reserve requirement for more banks to free up additional cash
The weighted average of the benchmark seven-day bond
repurchase agreement rate stood at 3.16 percent at
midday on Friday, down 8 basis points from last week's close.
Rates of other tenors edged higher as steep falls over the
past several weeks capped a further downtrend, traders said. The
14-day repo added 7 basis points to 3.44 percent.
Before the week, the seven-day repo rate plunged 83 basis
points last month while the 14-day rate tumbled 86 basis points.
The People's Bank of China (PBOC) injected a net 73 billion
yuan ($12 billion) this week through its open market operations,
up from a net 20 billion yuan injection last week. It has pumped
a combined net 257 billion yuan into the money markets over the
past four weeks.
Traders widely expect the PBOC will further inject money
into the markets by resuming reverse repos in open market
operations, supplemented by other similar tools such as
re-lending, re-discount and short-term lending facilities
STRONGER EASING UNLIKELY
Money market conditions have remained much looser this year
compared with the second part of last year, as the PBOC has
increasingly eased its grip on liquidity given prolonged
softness in China's economy, traders said.
Annual economic growth slowed to an 18-month low of 7.4
percent in the first quarter, raising the risk that the
government could miss its growth target - set at 7.5 percent in
2014 - for the first time in 15 years.
"With the central bank having not yet exhausted its milder
tools, it is unlikely to use stronger easing measures such as
cuts in all banks' reserve requirement or interest rates for
now," said a dealer at a major state-owned bank in Shanghai.
Traders see money market rates remaining largely stable at
the current relatively low levels in coming weeks.
China's fixed-income markets have also seen a steep
downtrend this year, with the benchmark five-year interest rate
swap at 3.88 percent by midday on Friday, compared
with the recent peak of 5.3 percent hit on Jan. 6.
The one-year IRS, which is typically more
sensitive to short-term liquidity conditions, dropped to 3.45
percent, from 5.24 percent touched on Jan. 2.
SHORT TERM RATES:
Instrument RIC Rate* Change (weekly,
1-day repo 2.5953 +2
7-day repo 3.1607 -8
14-day repo 3.4414 +7
7-day SHIBOR 3.1500 -8
*The volume-weighted average price (VWAP) at midday Friday
** Compared to the VWAP at market close the previous Friday
KEY INTEREST RATE SWAPS:
Instrument RIC Rate Spread (bps)*
2 yr IRS based on 1 2.8710 -12.9
5 yr 7-day repo swap 3.88 +88
1 yr 7-day repo swap 3.45 +45
*This spread can be seen as a proxy for forward-looking market
expectations of an interest rate cut or rise.
GOVERNMENT BOND FUTURES
Instrument RIC Price Change
Jun 2014 5 yr 94.03 -0.09
Sep 2014 5 yr 94.462 -0.05
Dec 2014 5 yr 94.86 -0.03
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- Fiscal deposits drive interbank liquidity trends GRAPHIC:
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trickle in Dec 2013 GRAPHIC: link.reuters.com/saz74t
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expectations GRAPHIC: link.reuters.com/jyr95t
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($1 = 6.24 Chinese yuan)
(Editing by Kim Coghill)