July 13, 2018 / 6:48 AM / 4 months ago

China's money rates rise but cash conditions remain loose

    SHANGHAI, July 13 (Reuters) - China's primary money rates
edged up slightly this week, but liquidity remained "very loose"
despite the central bank draining cash, traders said.
    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 2.6469
percent on Friday afternoon.
    It was about 20 basis points higher than the previous week's
closing average rate of 2.4458 percent, which was below the
price the central bank charges bigger lenders in the primary
market. The 7-day reverse repo rate in the primary market was
2.55 percent. 
    Traders said cash conditions had been quite loose since the
People's Bank of China announced the reverse requirement ratio
(RRR) cut in late June and it came into effect on July 5,
freeing up about 700 billion yuan ($105.02 billion) in
liquidity. High cash demand from the end of the quarter had also
eased. 
    The central bank has drained a total of 960 billion yuan on
a net basis through open market operations over the last three
weeks, including a net 90 billion yuan withdrawal this week.
    As of Friday, outstanding reverse repos had fallen to 40
billion yuan, all set to expire next week, leaving "the PBOC
with much more flexibility in conducting open market operations
as tax payments will kick in soon," said a trader at a Chinese
bank in Shanghai.
    The PBOC said in a statement on Friday that it had lent
188.5 billion yuan to financial institutions via its one-year
medium-term lending facility (MLF) with rates unchanged.
    The fresh injection of funds via the MLF effectively rolled
over the same amount in such loans maturing on the same day.
    Looser cash conditions came after the central bank changed
the level at which it was managing liquidity to "reasonable and
ample" from the "reasonable and stable" seen in previous
official documents. Many market analysts interpreted it as a
sign that more easing is likely over the rest of the year. 
    Analysts polled by Reuters expect the PBOC to cut the
reserve requirement by another 100 basis points to 14.50 percent
in the fourth quarter from the current 15.50 percent.
    The RRR is likely to be cut further in 2019, ending the year
at 13.75 percent from the previously-expected 16.00 percent at
end-2019, the poll found.

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.4460      2.4580      -1.20                      0.00
                                                                     
                                                                     
 Seven-day        2.6469      2.6418      +0.51                      0.00
                                                                     
                                                                     
 14-day           2.8012      2.7307      +7.05                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.6250      2.3900      +23.50                     187,783.4
                                                                     0
                                                                     
 Seven-day<CN7DR  2.8700      2.4800      +39.00                     35,448.40
 PO=SS>                                                              
 14-day           2.9050      2.7650      +14.00                     11,927.40
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.4700      2.4800      -1.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.6500      2.6400      +1.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           2.9000      2.9000      +0.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.4800      2.4870      -0.70                      
                                                                     
 Seven-day        2.6860      2.6860      +0.00                      
                                                                     
 Three-month      3.6130      3.6260      -1.30                      
                                                                     
 
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=        3.2100               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 = 6.6656 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Eric
Meijer)
  
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