October 13, 2017 / 8:14 AM / a year ago

China money rates fall post-holiday and pre-party congress

    SHANGHAI, Oct 13 (Reuters) - China's primary money rates
fell in the first week after the long National Day holidays as
authorities carefully managed liquidity levels ahead of the
opening of a pivotal Communist Party congress.
   Helping rates fall was the central bank's announcement - just
before the one-week holiday - that it would cut the amount of
cash reserves that some banks must hold. 
   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 2.8219
percent on Friday afternoon.
    That was nearly 17 basis points lower than the closing
average rate on Sept. 29, the last trading day before China's
markets closed for the holidays.
    The Shanghai Interbank Offered Rate (SHIBOR) for the same
tenor fell to 2.8516 percent, 11 basis points below the Sept. 29
    The one-day or overnight rate stood at 2.5587 percent and
the 14-day repo was at 3.7501 percent.
    On Sept. 30, the People's Bank of China (PBOC) said it would
cut the reserve requirement ratio (RRR) for banks that meet
certain requirements for lending to small businesses and the
agricultural sector. 
    The cut of at least 50 basis points, which analysts say will
affect most banks, will not go into effect until next year, but
is expected to free up hundreds of billions of yuan in
    State media reported an unnamed central bank official as
saying that the planned cut would not alter policymakers'
resolve to lower financial risk and bank leverage ratios.

    The RRR cut announcement and continued emphasis on lowering
financial risk comes ahead of the party congress, opening on
Oct. 18, at which stability is expected to be a central theme.
    However, some traders questioned the link between market
liquidity and the once-in-five-years meeting.
    "Liquidity conditions are very relaxed, but I don't think it
has anything to do with the 19th Party Congress. They are
typically loose after the end of the quarter," said a trader at
a state-owned bank in Shanghai. "Looking ahead to next week,
there is no clear market direction before the release of
September monetary data."
    Liquidity received a boost on Friday after the central bank
injected 498 billion yuan ($75.69 billion) into the financial
system through one-year medium-term lending facility (MLF)
loans. The move was expected after the PBOC polled banks on
their demand for MLF loans on Monday.
    The MLF injection more than offset MLF loans maturing this
week, and came alongside a net weekly drain of 240 billion yuan
through open market operations.
    The central bank's "attitude of protecting the basic
stability of liquidity conditions remains unchanged," Citic
Securities analysts wrote in a note on Friday.
 Key money rates at a glance:
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5587      2.6014      -4.27                      0.00
 Seven-day        2.8219      2.8299      -0.80                      0.00
 14-day           3.7501      3.7873      -3.72                      0.00
 Shanghai stock exchange repo market
 Overnight        2.9100      2.9250      -1.50                      426,029.6
 Seven-day<CN7DR  3.2950      3.4550      -16.00                     47,963.50
 14-day           3.9250      3.8500      +7.50                      10,257.70
 PBOC Guidance Rates
 Overnight        2.5700      2.6200      -5.00                      
 Seven-day        3.1000      3.3000      -20.00                     
 14-day           3.8000      3.8000      +0.00                      
 Overnight        2.6050      2.6570      -5.20                      
 Seven-day        2.8516      2.8860      -3.44                      
 Three-month      4.3599      4.3581      +0.18                      
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
 2 yr IRS based on 1   CNABAD2YF=        0.0000              -1.5
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        3.7900               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
 Overview of China financial market data:

($1 = 6.5799 Chinese yuan)

 (Reporting by Andrew Galbraith; Editing by Richard Borsuk)
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