August 3, 2018 / 8:50 AM / 4 months ago

China's money rates fall on ample liquidity, but not expected to drop much more

    SHANGHAI, Aug 3 (Reuters) - China's primary money rates fell
this week on ample liquidity, with the country's central bank
skipping its open market operations for the entire week.
    Traders said cash conditions had been very loose and that
they had no difficulty squaring their books.
    That dragged some secondary market rates below the price the
central bank charges bigger lenders in the primary market.
    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 2.3838
percent on Friday afternoon, compared with 2.55 percent offered
by the central bank in the primary market. 
    Friday's rate was 24 basis points lower than the previous
week's closing average rate of 2.6237 percent. 
    The authorities have recently shifted their policy focus
towards supporting economic growth, including raising liquidity,
but many traders and analysts see limited downside room for
borrowing costs to fall further as massive policy easing
currently seems unlikely.
    "The steps taken and announced so far are relatively modest.
The deleveraging campaign of the last two years has helped
stabilize the debt-to-GDP ratio and reduced financial risks. We
think the leadership would not want to risk jeopardizing these
achievements," Louis Kuijs, head of asia economics at Oxford
Economics said in a note on Thursday.
    He added that he did not expect a full-blown shift towards
significant stimulus.
    China's central bank has said it would fine-tune monetary
policy in a "pre-emptive" way to ensure liquidity is reasonably
ample, amid heightened trade tension that has stiffened economic
headwinds.
    Larry Hu, economist at Macquarie Capital in Hong Kong, said
policy easing had to "be reactive, not proactive".
    "The size of stimulus has to be limited, instead of a
'do-whatever-it-takes' mode. The target is to stabilize credit
growth and infrastructure spending, not to engineer a V-shaped
recovery. In short, what changes is the pace of deleveraging,
not the direction of it," Hu said.
    In open market operations, maturing reverse repos drained a
net 210 billion yuan ($30.57 billion) of funds from interbank
money market for the week. The outstanding balance had fallen to
zero at the end of this week.
    
Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        1.8253      1.9380      -11.27                     0.00
                                                                     
                                                                     
 Seven-day        2.3893      2.4212      -3.19                      0.00
                                                                     
                                                                     
 14-day           2.3094      2.3246      -1.52                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.4500      2.4800      -3.00                      640,014.1
                                                                     0
                                                                     
 Seven-day<CN7DR  2.3200      2.4600      -14.00                     70,698.30
 PO=SS>                                                              
 14-day           2.3550      2.4650      -11.00                     26,014.60
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        1.8500      1.9900      -14.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.4000      2.5000      -10.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           2.3300      2.5500      -22.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        1.8490      1.9700      -12.10                     
                                                                     
 Seven-day        2.5250      2.5840      -5.90                      
                                                                     
 Three-month      3.0030      3.0560      -5.30                      
                                                                     
 
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=        3.1200               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 = 6.8700 Chinese yuan)

    
 (Reporting by Winni Zhou and Andrew Galbraith
Editing by Joseph Radford)
  
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