April 13, 2018 / 9:52 AM / 2 months ago

China's money rates stable as 'passive loosening' keeps liquidity ample

    SHANGHAI, April 13 (Reuters) - China's primary money rates remained stable this week thanks
in part to weaker demand for cash prompted by China's official deleveraging campaign, and
despite the central bank conducting a net drain of liquidity from the banking system for a
fourth consecutive week.   
    Traders and market watchers confirmed that they saw loose liquidity conditions in the
market. One portfolio manager in Shanghai said that policies aimed at reducing financial system
leverage had been effective in reducing demand for cash -- what some market players have called
"passive loosening".
    "As a result of deleveraging, liquidity situation should improve and yield curve should
steepen," he 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 2.6966
percent. 
    That is just 0.2 basis points higher than the closing average rate of 2.6947 percent on
Wednesday, April 4. China's markets were closed on Thursday and Friday last week for a national
holiday.
    The Shanghai Interbank Offered Rate (SHIBOR) for same tenor fell to 2.7980 percent, down 3.2
basis points since April 4.
    The one-day or overnight rate stood at 2.5413 percent and the 14-day repo stood at 3.1634
percent.
    For the week, the People's Bank of China (PBOC) drained a net 100 billion yuan ($15.92
billion) through its open market operations, the fourth consecutive week of net drains. The
central bank had skipped open market operations on Tuesday through Friday, citing what it said
were "relatively high" liquidity levels in the banking system.
    A trader at a regional bank in Shanghai described trading as "weak". 
    "Recently, (rates) have been fluctuating at lower levels. Liquidity is now slightly lower,"
she said. "After all, there's no new stimulus."
    Data released on Friday showed that regulators continue to balance a campaign to curb
financial risks with a desire to maintain economic growth.

 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5413      2.5489      -0.76                      0.00
                                                                     
                                                                     
 Seven-day        2.6966      2.6948      +0.18                      0.00
                                                                     
                                                                     
 14-day           3.1634      3.2384      -7.50                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        1.9000      2.4200      -52.00                     631,449.2
                                                                     0
                                                                     
 Seven-day<CN7DR  2.8800      2.8800      +0.00                      40,630.70
 PO=SS>                                                              
 14-day           3.2050      3.1350      +7.00                      7,338.50
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5600      2.5600      +0.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.8000      2.8000      +0.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.2400      3.2200      +2.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.5570      2.5570      +0.00                      
                                                                     
 Seven-day        2.7980      2.8000      -0.20                      
                                                                     
 Three-month      4.1790      4.1990      -2.00                      
                                                                     
 
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=        3.6600               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 = 6.2803 Chinese yuan)

    
 (Reporting by Andrew Galbraith
Editing by Jacqueline Wong)
  
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