June 22, 2018 / 7:35 AM / 3 months ago

China's 14-day money rates jump but contained by c.bank injections

    SHANGHAI, June 22 (Reuters) - Seasonal factors caused
China's 14-day money rates to surge this week, but actions
authorities took kept a lid on them. 
    The surge was fuelled by hunger for cash among financial
institutions ahead of tax payments and a quarterly central bank
health check. 
    Cooling things down were net liquidity injections through
open market operations and a surprise move to lend money through
the central bank's medium-term lending facility. 
    The volume-weighted average of the benchmark 14-day repo
rate traded in the interbank market, at 4.1687
percent, was up nearly 117 basis points from the previous week's
close of 3 percent.
    The rate had touched 6.5 percent on Thursday, its highest
level since April 24, when tight market conditions ahead of a
cut in banks' reserve requirements pushed it as high as 7.5
percent.
    But traders said that moves by the People's Bank of China
(PBOC) to inject liquidity ensured that the rate on 14-day
money, sought this week by institutions to see them into the
second half, remained relatively low.
    The volume-weighted average seven-day repo rate
, considered the best indicator of general
liquidity in China, fell 4.5 basis points to 2.7174 percent,
compared with a closing average rate of 2.7627 on June 15.
    The Shanghai Interbank Offered Rate (SHIBOR) for the same
tenor was at 2.8190 percent, less than one basis point higher
than the previous week's close. The one-day or overnight rate
stood at 2.5616 percent.
    The PBOC injected a net 140 billion yuan ($21.54 billion)
into money markets this week, following a net 240 billion yuan
injection the week before. In addition, it unexpectedly lent 200
billion yuan to financial institutions on Tuesday through
one-year medium-term lending facility (MLF) loans.
    The central bank said the MLF move was intended to "make up
for mid- to long-term liquidity gap in the banking system" to
counter factors including tax payments, government bonds
issuance and maturing reverse repos.
    Demand for cash among financial institutions is also higher
as they prepare for the central bank's macroprudential
assessment (MPA), a quarterly health check.
    "The PBOC does not want a liquidity shock, while at the same
time keeping deleveraging going," said a Shanghai-based fixed
income portfolio manager. 
    Still, he said, the liquidity injection did not indicate a
loosening of the PBOC's policy stance.
    "When the U.S. Fed is hiking rates, I don't think the PBOC
has too much room to loosen," he said.
    Market watchers were similarly cautious about the potential
for a cut in bank reserve requirements to boost broader market
liquidity. 
    China's State Council, or cabinet, was quoted by state media
on Wednesday as saying that Beijing will use tools including
targeted cuts in banks' reserve requirement ratios to keep
economic growth steady.
    "If liquidity is strictly limited to small and micro
enterprises, it is difficult to see this supporting a recovery
in the bond market," Huachuang Securities fixed income analysts
said in a note.
    
 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5616      2.5650      -0.34                      0.00
                                                                     
                                                                     
 Seven-day        2.7174      2.7660      -4.86                      0.00
                                                                     
                                                                     
 14-day           4.1687      4.3509      -18.22                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.9200      2.6900      +23.00                     549,850.8
                                                                     0
                                                                     
 Seven-day<CN7DR  5.1100      3.7150      +139.50                    63,006.80
 PO=SS>                                                              
 14-day           5.3500      5.5750      -22.50                     14,071.00
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5800      2.5800      +0.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.8000      3.0000      -20.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           5.4000      6.2000      -80.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.5860      2.5930      -0.70                      
                                                                     
 Seven-day        2.8190      2.8250      -0.60                      
                                                                     
 Three-month      4.3050      4.3290      -2.40                      
                                                                     
 
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=        3.3200               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 = 6.4984 Chinese yuan)

    
 (Reporting by Andrew Galbraith; Editing by Richard Borsuk)
  
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