December 21, 2018 / 8:48 AM / 5 months ago

China money rates fall on resumed reverse repos, new lending tool

    SHANGHAI, Dec 21 (Reuters) - China's primary money rates
fell this week after the central bank resumed liquidity
injections through its regular open market operations, following
a long hiatus, and as it introduced a tool for targeted lending
with lower interest. 
    On Monday, the People's Bank of China (PBOC) injected 160
billion yuan ($23.2 billion) through reverse bond repurchase
agreements, the first such operation after an unprecedented
36-day pause.
    It then made four more injections, adding 600 billion yuan
into money markets for the week through seven- and 14-day
reverse repos, with rates unchanged. This was the largest weekly
net injection since November 2017.
    The injections gave financial institutions cash to bridge
the year-end, when corporate demand for funds increases due to
tax payments.
    "Liquidity levels have been good all along," said a trader
at an Asian bank in Shanghai.
    On Friday afternoon, the volume-weighted average rate of the
benchmark seven-day repo traded in the interbank
market, considered the best indicator of general liquidity in
China, was 2.5857 percent.
    That was 10.65 basis points lower than the previous week's
closing average rate of 2.6922 percent. 
    The Shanghai Interbank Offered Rate (SHIBOR) for the same
tenor fell to 2.6490 percent, 3.4 basis points below the
previous week's close of 2.6830 percent.
    The one-day or overnight rate stood at 2.4697 percent and
the 14-day repo at 3.7711 percent.
    While leaving reverse repo rates unchanged, the PBOC sought
to reduce funding costs for smaller firms with a new lending
tool, the targeted medium-term lending facility (TMLF), in what
some analysts said amounted to a targeted rate cut.
    TMLF loans will carry one-year interest rates of 3.15
percent, 15 basis points lower than those on the existing
one-year medium-term lending facility (MLF). Banks receiving
TMLF loans will also be allowed to roll them over twice. MLF
loans cannot be rolled over.
    When announcing the TMLF, the PBOC also said it would boost
relending and rediscount quotas by 100 billion yuan to help
small enterprises.    
    "We think this is a timely move from PBOC as banks'
liquidity needs are typically more acute between the end of the
calendar year and the Chinese New Year," analysts at S&P Global
Ratings said in a report. 

 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.4697      2.5544      -8.47                      0.00
                                                                     
                                                                     
 Seven-day        2.5857      2.6374      -5.17                      0.00
                                                                     
                                                                     
 14-day           3.7711      3.3444      +42.67                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.1200      3.4500      -33.00                     684,774.6
                                                                     0
                                                                     
 Seven-day<CN7DR  5.8600      3.7350      +212.50                    47,591.50
 PO=SS>                                                              
 14-day           5.2500      5.1100      +14.00                     32,865.50
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5000      2.5700      -7.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.6300      2.6600      -3.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.9000      4.5000      +40.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.4860      2.5670      -8.10                      
                                                                     
 Seven-day        2.6490      2.6760      -2.70                      
                                                                     
 Three-month      3.2090      3.1990      +1.00                      
                                                                     
 
KEY INTEREST RATE SWAPS:
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
                                                 rate*
 2 yr IRS based on 1   CNABAD2YF=        0.0000              -1.5
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        0.0000               n/a
 
*This spread can be seen as a proxy for forward-looking market
expectations of an interest rate cut or rise   

                                      
China FX and money market guide: 
 China debt market guide:
 SHIBOR rates:
 Reports on central bank open market operations:
 New Chinese debt issues:
 Prices for central bank bills, treasury bonds and sovereign
bonds:
 Overview of China financial market data:

($1 = 6.9007 Chinese yuan)

    
 (Reporting by Andrew Galbraith; Editing by Richard Borsuk)
  
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