January 25, 2019 / 7:52 AM / 22 days ago

China's money rates rise marginally as PBOC offsets pre-holiday cash demand

    SHANGHAI, Jan 25 (Reuters) - China's primary money rates
inched up this week on steadily rising cash demand for holiday,
but the rises were capped by additional funds released from the
second stage of a reduction in banks' reserve requirement and
from a new targeted liquidity tool.
    Households and businesses usually have rising cash demand
ahead of the week-long Lunar New Year holiday, which falls in
early February this year. Such demand sucks funds out of the
market and push borrowing costs higher in the interbank market.
Some traders expect the cash needs would reach a peak next week.
    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 2.5905
percent on Friday afternoon, about 4 basis points higher than
the previous week's closing average rate of 2.5472 percent.
    Traders said liquidity in the interbank market remained
relatively ample, with most institutions able to square their
books without much difficulty. Traders and market analysts said
the central bank's generous liquidity support kept cash
conditions balanced and prevented a cash crunch. 
    The People's Bank of China (PBOC) injected 257.5 billion
yuan ($38.08 billion) to some commercial banks via targeted
medium-term lending facility (TMLF) for the first time to spur
lending to small and private firms. 
    And on Jan.4 , the central bank announced that it would cut
banks' reserve requirement ratios (RRRs), the amount of cash
that they must hold as reserves, by 100 basis points in two
stages. The second 50 bps reduction was made on Friday.
    Ming Ming, head of fixed income research at CITIC Securities
expects funds released from the second stage of RRR cut and the
TMLF totaled around 1 trillion yuan to "counter sizable cash
demand ahead of the Lunar New Year holiday".
    In open market operations, the PBOC skipped reverse repos
for the entire week, with maturing repos draining a total of 770
billion yuan. 

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.3607      2.2651      +9.56                      0.00
                                                                     
                                                                     
 Seven-day        2.5905      2.5715      +1.90                      0.00
                                                                     
                                                                     
 14-day           2.8666      2.7437      +12.29                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.7550      2.6250      +13.00                     331,913.7
                                                                     0
                                                                     
 Seven-day<CN7DR  3.4500      3.0050      +44.50                     58,391.50
 PO=SS>                                                              
 14-day           3.4500      3.3200      +13.00                     17,936.10
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.3700      2.2800      +9.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.6000      2.6000      +0.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.0000      2.7000      +30.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.3620      2.2630      +9.90                      
                                                                     
 Seven-day        2.6260      2.6160      +1.00                      
                                                                     
 Three-month      2.9020      2.9040      -0.20                      
                                                                     
 
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=        0.0000               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 = 6.7628 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Simon
Cameron-Moore)
  
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