China’s benchmark money-market rate fell to the lowest level since Dec. 13 after the central bank added funds to the financial system for an eighth week, helping ease a cash shortage.
The People’s Bank of China pumped 16 billion yuan ($2.4 billion) into the system in the past week, contributing to 357 billion yuan of funds injected through open-market operations since Nov. 11, according to data compiled by Bloomberg. The monetary authority sold 1 billion yuan of three-month debt today at a yield of 2.1777 percent, compared with 2.0156 percent at an auction a week ago.
"The authorities rarely want rates to spike and I expect them to continue to inject liquidity until the latest spike fades,” said Tim Condon, head of Asian research at ING Groep NV. “The message from the PBOC is the inflation threat requires tighter monetary conditions, but policy won’t shock the system because the PBOC will ensure there’s sufficient liquidity.”
The seven-day repurchase rate, which measures lending costs between banks, fell 12 basis points to 3.14 percent, according to a daily fixing published at 11 a.m. by the National Interbank Funding Center. The rate reached a three-year high of 6.34 percent on Dec. 31, as lenders held onto cash to meet holiday demand from customers following the sixth increase in reserve- requirement ratios of 2010.
"I expect some of the increase will be retraced as banks’ anxiety about PBOC policy diminishes and they stop hoarding liquidity,” said Singapore-based Condon.
The rate will likely stay around 3 percent to 3.5 percent in the near term, but then rise to above 4 percent toward the end of the month as cash tightens due to the onset of the Chinese New Year, Frances Cheung, senior strategist at Credit Agricole CIB in Hong Kong, wrote in a research note today.
The yield on China’s 3.77 percent government bond due December 2020 held at 3.81 percent, according to the China Foreign Exchange Trade system. One-year interest-rate swaps, or the fixed cost needed to receive the floating seven-day repo rate, climbed four basis points to 3.165 percent.
