December 28, 2018 / 7:23 AM / 24 days ago

China's money rates up, but off multi-month highs after c.bank liquidity support

    SHANGHAI, Dec 28 (Reuters) - Year-end cash demand sent
China's primary money rates soaring over the week, before
generous central bank liquidity support pulled them back on
Friday.
    Strong demand for funds from both financial institutions and
households sent interbank borrowing costs to multi-month highs
earlier in the week.
    The volume-weighted average rate of the benchmark 14-day
repo, a gauge of general liquidity in China,
steadily rose through the week to hit a high of 8 percent on
Thursday, the highest level since April 19. On Friday afternoon,
it eased to 4.82 percent, still up from 3.78 percent at the end
of last week.
    The 7-day rate soared to a six-month high of 5.3 percent at
one point on Friday morning before falling to 2.83 percent in
afternoon trade, versus 2.58 percent on Friday last week.
    Traders said the retreat on the day was largely due to huge
amounts of cash injection by the central bank through open
market operations.
    The People's Bank of China (PBOC) injected a net 220 billion
yuan ($32.11 billion) via reverse repos on Friday to "stabilise
year-end fund conditions, and to keep banking system liquidity
reasonably ample", it said in a statement on its website. 
    It was the biggest single-day net cash injection since mid
July. 
    Friday also marks the last trading day for most financial
institutions to square their books and fulfill regulatory
requirements. 
    Market watchers said this week's cash conditions were much
better than the year-ago period, when the country's deleveraging
campaign, along with a tighter monetary policy stance, saw
scramble for funds till the last trading day in 2017.
    This year, the central bank has kept its policy relatively
loose as the economy faces rising headwinds, including from a
Sino-U.S. trade dispute and slowing global growth.
    The PBOC did not include the previously-used "neutral" to
describe Chinese policy - an omission that could indicate a
greater bias for easing at a time growth is slowing, according
to a statement following a quarterly meeting of its monetary
policy committee on Thursday.
    The PBOC has already cut banks' reserve requirement ratios
(RRR) four times this year, with many market participants
expecting further reductions. The state council on Monday also
flagged the chance of a targeted RRR cut to support small and
private firms.
    "Based on China's liquidity conditions and the need to
support growth, we expect a total of 250 basis points (bp) of
RRR cuts in 2019, with 100 bp RRR cut likely in January," Lu
Ting, chief China economist at Nomura said in a note.
    

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        1.4375      1.7196      -28.21                     0.00
                                                                     
                                                                     
 Seven-day        2.8284      2.7856      +4.28                      0.00
                                                                     
                                                                     
 14-day           4.8220      4.9886      -16.66                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        5.0850      7.7850      -270.00                    260,196.4
                                                                     0
                                                                     
 Seven-day<CN7DR  3.9550      7.7100      -375.50                    30,775.50
 PO=SS>                                                              
 14-day           3.4500      5.3700      -192.00                    9,204.50
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        1.4600      1.8000      -34.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        5.0000      3.5400      +146.00                    
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           5.0000      6.5000      -150.00                    
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        1.4700      1.7930      -32.30                     
                                                                     
 Seven-day        2.7210      2.6950      +2.60                      
                                                                     
 Three-month      3.3570      3.3390      +1.80                      
                                                                     
 
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 = 6.8520 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch
Editing by Shri Navaratnam)
  
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