China's money rates fall

China's primary money rates fell this week as demand for cash for regular tax payments eased after the month end, with traders awaiting November credit data for potential clues on further policy easing. The country's central bank made no net injections or drains into money markets for a record fifth consecutive week. While skipping daily reverse repurchase operations, the People's Bank of China effectively rolled over 187.5 billion yuan ($27.26 billion) worth of maturing one-year medium-term lending facility (MLF) loans on Thursday.
It issued the same amount of loans at the same interest rate, 3.30 percent. On Friday, 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 2.5575 percent. That was 12 basis points (bps) lower than the previous week's closing average rate of 2.6778 percent.
The Shanghai Interbank Offered Rate (SHIBOR) for the same tenor rose to 2.6110 percent, 5.8 bps below the previous week's close of 2.6690 percent. The one-day or overnight rate stood at 2.3944 percent and the 14-day repo stood at 2.4135 percent. "Credit growth is not that strong ... so it's not like there's a huge demand for credit," said Albert Leung, a rates strategist at Nomura in Hong Kong. He characterised money market rates as "quite stable."
"Generally speaking credit growth, aggregate financing is weak," contributing to ample money market liquidity, he said. China's Ministry of Finance gave a small boost to liquidity levels on Friday, albeit at a higher rate, with the auction of 100 billion yuan ($14.53 billion) worth of one-month fiscal deposits at an average yield of 4.02 percent.
It was the first time the ministry had auctioned one-month deposits, and compares with an average 3.71 percent yield on three-month deposits auctioned in September. Leung attributed the higher rate to the relatively small size of the auction, and to banks taking the opportunity to seize short-term funding that crosses into 2019 to help cover an expected rise in year-end demand.
Credit data in the coming week is expected to show new bank loans in China likely rebounded in November after a sharp drop the previous month, a Reuters poll showed, as the government sought to keep liquidity ample to support the slowing economy. Money supply growth likely remained at a record low, however, while outstanding loan growth may have eased slightly for a second month, reinforcing views that the central bank will have to ease policy further in coming months.
Markets will be looking for signs in the data of whether recent policy loosening measures have been effective in stimulating loan demand, particularly from smaller, private companies which account for a large share of China's jobs. A multi-year clampdown on shadow banking has squeezed a significant funding channel for those firms.