June 8, 2018 / 7:58 AM / 10 days ago

China's money rates fall, helped by c.bank's long-term cash injection

    SHANGHAI, June 8 (Reuters) - China's primary money rates
fell this week as liquidity deepened at the start of a month and
market sentiment improved after a net long-term cash injection
led by the central bank.
    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, fell during
the week to 2.6864 percent on Friday afternoon.
    That was about 26 basis points lower than the previous
week's closing average rate of 2.9415 percent.
    Traders said higher cash demand at the end of May - like
every month - had faded, and cash conditions were balanced, even
with a loosening bias this week.
    The People's Bank of China (PBOC) lent 463 billion yuan
($72.23 billion) to financial institutions on Wednesday via its
1-year medium-term lending facility (MLF), more than offsetting
259.5 billion yuan of such loans maturing the same day.
    "The higher-than-expected long term liquidity injection
against the backdrop of rising default risk shows central bank's
intention to ease market concern about the credit risk," OCBC
Bank said in a note, referring to a spate of recent corporate
bond defaults that prompted worries over credit conditions.
    Analysts believe the PBOC's move may possibly push back 
another cut in banks' reserve requirement ratio (RRR), which
unfreeze more liquidity for smaller lenders who do not have
direct access to the central bank's liquidity facility.
    Markets have generally expected another RRR cut in the
second half after April's surprise reduction, with some
speculation it could come as early as this month or July.
    In the short-term the market focus will be the coming week's
 Federal Reserve's policy meeting, expected to produce a hike in
U.S. interest rates. Money market traders and analysts expect
the PBOC to follow the suit by increasing interest rates of open
market operations, as it has in the past.
    "The PBOC will likely adjust the reverse repo rate by 5
basis points after the U.S. FOMC hikes the Fed funds rate,"
economists at ANZ Bank said in a note on Friday. 
    In open market operations, the PBOC drained a net 300
billion yuan this week following the previous week's net
injection of 410 billon yuan.
    Some traders worry the current high liquidity level is not
sustainable as June often brings tighter cash conditions.
Memories are still fresh of a cash crunch in June 2013 that sent
money rates soaring and spooked global markets.

Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5503      2.5314      +1.89                      0.00
                                                                     
                                                                     
 Seven-day        2.6864      2.6954      -0.90                      0.00
                                                                     
                                                                     
 14-day           3.2000      3.1828      +1.72                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.9850      2.7650      +22.00                     192,213.5
                                                                     0
                                                                     
 Seven-day<CN7DR  3.3750      3.1450      +23.00                     36,064.40
 PO=SS>                                                              
 14-day           3.6050      3.4000      +20.50                     9,660.80
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5700      2.5500      +2.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.8500      2.9000      -5.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.2500      3.2500      +0.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.5630      2.5550      +0.80                      
                                                                     
 Seven-day        2.7720      2.7830      -1.10                      
                                                                     
 Three-month      4.3510      4.3500      +0.10                      
                                                                     
 
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=        3.5500               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 = 6.4097 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Richard
Borsuk)
  
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