March 9, 2018 / 7:09 AM / in 2 months

China's money rates fall on loose cash conditions during annual meeting of parliament

    SHANGHAI, March 9 (Reuters) - China's primary money rates
fell this week as earlier efforts by the central bank to keep
cash in the financial system during a key political summit in
Beijing kept liquidity ample.
    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 2.7437
percent on Friday afternoon, about 17 basis points lower than
the previous week's closing average rate of 2.9150 percent. 
    Traders said cash conditions were balanced with a loosening
bias this week, and such a situation was well expected as the
annual meeting of parliament kicked off in Beijing on Monday.
    Traditionally, Chinese authorities have sought to push for
stability as major volatility in the economy would be unwelcome
during major political events.
    In open market operations, the People's Bank of China
skipped reverse bond repurchase agreements for the entire week,
with maturing reverse repos draining 240 billion yuan ($37.85
billion) on a net basis for the week.
    "The central bank is likely to skip or inject a small amount
of cash in open market operations next week to gradually absorb
the liquidity it had offered," Ming Ming, analyst at CITIC
securities said in a note.
    "The monetary policy stance would then return to prudent and
neutral to end the easing liquidity seen during the Lunar New
Year holiday and the annual meeting of parliament."
    The central bank injected 105.5 billion yuan to financial
institutions on Wednesday via its 1-year medium-term lending
facility (MLF), rolling over the same amount of the MLFs
expiring that day. 
    The PBOC failed to inject enough funds to cover all maturing
MLF for the month with another batch of MLFs worth 189.5 billion
yuan set to expire on March 16, triggering speculation about a
possible market rate hike in the next rollover, similar to what
it did in December shortly after the Federal Reserve's interest
rate hike.
    The PBOC raised its short- and medium-term market rates just
hours after the Fed's rate decision in December. This time, the
Fed decision will be made on March 21.
    China's central bank will probably have to respond to an
expected U.S. interest rate rise at a particularly sensitive
time later this month.
    "It's possible for the central bank to follow and add five
basis points this time. But I don't think the market actually
cares too much about it as a five to 10 basis point hike in the
open market operations is not huge enough to affect the prices
in money market trade," a trader at a major Chinese bank said.
    On the sidelines of the annual parliament session, PBOC Vice
Governor Yi Gang said on Friday that whether China would raise
rates depended on real economic conditions.

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5594      2.5433      +1.61                      0.00
                                                                     
                                                                     
 Seven-day        2.7437      2.7536      -0.99                      0.00
                                                                     
                                                                     
 14-day           3.4554      3.4787      -2.33                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.8950      2.8400      +5.50                      367,901.7
                                                                     0
                                                                     
 Seven-day<CN7DR  3.2800      3.2300      +5.00                      39,563.40
 PO=SS>                                                              
 14-day           3.4450      3.4150      +3.00                      15,530.90
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5800      2.5500      +3.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.9000      2.9000      +0.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.5000      3.5000      +0.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.5730      2.5700      +0.30                      
                                                                     
 Seven-day        2.8570      2.8620      -0.50                      
                                                                     
 Three-month      4.7410      4.7407      +0.03                      
                                                                     
 
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=        3.8700               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 = 6.3410 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Sam
Holmes)
  
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