April 27, 2018 / 7:28 AM / 4 months ago

China's money rates ease on liquidity support after RRR cut

    SHANGHAI, April 27 (Reuters) - China's primary money rates
eased this week after a reduction in banks' reserve requirements
went into effect and offset a central bank-led cash drain.
    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 3.0015
percent on Friday afternoon, around 4 basis points lower than
the previous week's closing average rate of 3.0441 percent.
    The People's Bank of China (PBOC) said its reduced
requirements for bank reserves, which came into effect on
Wednesday, freed up around 400 billion yuan ($63.09 billion).
    The RRR cut released a total of almost 1.3 trillion yuan,
out of which 900 billion yuan had been used by the banks to
repay their respective outstanding medium-term lending facility
(MLF), the PBOC said in a statement. 
    The central bank also reiterated that its prudent and
neutral monetary policy stance "remained unchanged" and said
overall liquidity in the banking system was "basically not
changed".
    Traders said PBOC's open market operations matched its
claims as it drained a net 270 billion yuan so far this week via
reverse repos, striving to keep cash conditions balanced, even
with a slightly tightening bias.
    Although cuts in the reserve requirement ratio (RRR) were
widely considered as easing, economists viewed the latest
reduction for replacement of outstanding MLF loans as credit
reallocation.
    David Qu, market economist at ANZ said the RRR cut was to
normalise the PBOC's balance sheet and reduce bank's marginal
funding costs.
    "We believe the PBOC will continue to cut the RRR by another
1 percent in H2 2018," Qu said, suggesting there was still room
for further cuts to offset the outstanding MLF loans as RRR is
no longer the only monetary policy tool available.
    The outstanding MLF loans stood at 4.917 trillion yuan at
the end of March, according to Reuters calculations based on
official data. 
    
 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.9231      2.7934      +12.97                     0.00
                                                                     
                                                                     
 Seven-day        3.0015      2.9530      +4.85                      0.00
                                                                     
                                                                     
 14-day           5.0031      4.7008      +30.23                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        8.8100      7.8250      +98.50                     250,609.3
                                                                     0
                                                                     
 Seven-day<CN7DR  5.8600      7.3150      -145.50                    34,633.30
 PO=SS>                                                              
 14-day           4.6600      5.2300      -57.00                     6,740.80
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.9200      2.8000      +12.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.5400      3.5000      +4.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           5.3000      5.0000      +30.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.9210      2.7650      +15.60                     
                                                                     
 Seven-day        2.9780      2.9250      +5.30                      
                                                                     
 Three-month      4.0070      3.9920      +1.50                      
                                                                     
 
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=        3.5700               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 = 6.3404 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch
Editing by Jacqueline Wong)
  
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