December 15, 2017 / 7:08 AM / in 2 months

China's money rates up after PBOC, taking Fed's cue, lifts market rates

    SHANGHAI, Dec 15 (Reuters) - China's primary money rate
edged higher this week after the central bank lifted short- and
medium-term market rates on Thursday, just hours after the U.S.
Federal Reserves tightened policy.
    The People's Bank of China (PBOC) increased rates on reverse
repurchase agreements, or reverse repos, used for open market
operations by 5 basis points for the 7-day and 28-day tenors.
    It also increased rates on its one-year medium-term lending
facility (MLF) by 5 basis points.
    Economists were of the view the PBOC hikes were a symbolic
move meant to signal authorities' commitment to extend their
campaign to reduce leverage and curb risky lending.
    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 2.9198
percent on Friday afternoon, more than 9 basis points higher
than the previous week's closing average rate of 2.8264 percent.
    Many market watchers expect China's central bank to raise
market rates further next year, in line the Fed's tightening
policy track for 2018.
     Economists at ANZ said the timing of the PBOC's decision to
raise market rates was "a bit earlier" and the pace is smaller
than expected.
    "We now expect the PBOC to hike rates by 35 basis points in
total in 2018 to take the 7-day reverse repo rate to 2.85
percent by the end of 2018," they said in a note.
    China International Capital Corporation (CICC) expected
Beijing to continue with "monetary tapering", and forecast a
cumulative 30 basis points increase in the reverse repo rate
next year. 
    Traders said PBOC's small rates adjustment didn't hurt 
market sentiment, noting the central bank has injected more
funds into the market than they had expected through different
bond instruments this week.
    In the open market operations, the PBOC injected a net 80
billion yuan ($12.11 billion) into market markets via reverse
repos, along with another 288 billion yuan via one-year MLF
loans, which more than compensated for the maturity of such
loans this week.
    A batch of 187 billion yuan of MLF loans is set to expire on
Saturday.
    Many traders said year-end factors would start to weigh on
liquidity conditions. Households and companies usually shore up
cash positions before the end of the year, when big banks will
be reluctant to lend money to their smaller peers. 
    The Shanghai Interbank Offered Rate (SHIBOR) for the
seven-day tenor rose to 2.8710 percent, 7.2 basis points higher
than last Friday's fix.
    The one-day or overnight rate stood at 2.6910 percent and
the 14-day repo stood at 4.1773 percent.
    
    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.6910      2.8114      -12.04                     0.00
                                                                     
                                                                     
 Seven-day        2.9198      2.8998      +2.00                      0.00
                                                                     
                                                                     
 14-day           4.1773      4.2044      -2.71                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.7250      3.6850      +4.00                      313,501.6
                                                                     0
                                                                     
 Seven-day<CN7DR  4.2050      4.1400      +6.50                      44,780.90
 PO=SS>                                                              
 14-day           5.4050      4.5050      +90.00                     10,646.70
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.7000      2.8200      -12.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.4000      3.4400      -4.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.2000      4.4000      -20.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.7240      2.8030      -7.90                      
                                                                     
 Seven-day        2.8710      2.8680      +0.30                      
                                                                     
 Three-month      4.8175      4.8144      +0.31                      
                                                                     
 
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=        3.9700               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 = 6.6075 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch)
  
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