China Money-Market Rate Climbs After PBOC Calls for Tightening

China’s benchmark money-market rate climbed to the highest level in more than a month as the central bank said it will strengthen liquidity management amid speculation borrowing costs will increase.

Policy makers will use more quantitative and price measures to manage liquidity, People’s Bank of China Deputy Governor Hu Xiaolian said yesterday. The central bank has already raised lenders’ reserve requirements twice this month. Interest rates could climb a quarter of a percentage point by the end of the year, said Chris Leung, a senior economist at DBS Bank Ltd.

“The expectation of an interest-rate hike is pushing money markets up,” said Hong Kong-based Leung. “I don’t think there will be further reserve-requirement hikes. Enough has been done on the supply side, but work needs to be done on the demand side.”

The seven-day repurchase rate, which measures lending costs between banks, jumped 15 basis points to 2.48 percent, according to a daily fixing published at 11 a.m. by the National Interbank Funding Center in Shanghai. That was the highest level since Oct. 8. A basis point is 0.01 percentage point.

The one-month Shanghai Interbank Offered Rate, or Shibor, advanced 17 basis points to 3.43 percent, the highest since Sept. 30, according to a fixing by the interbank funding center.

Swaps Climb

Two-year swaps, the fixed rate needed to receive the floating seven-day repo rate, advanced for a fifth day. The rate rose two basis points to 3.30 percent, data compiled by Bloomberg show.

The PBOC sold three-month bills in open-market operations today at 1.8131 percent, unchanged from last week. It offered 3 billion yuan ($451 million) of 91-day notes, the smallest amount this year. The central bank also sold 1 billion yuan of three- year bills at 3 percent, unchanged from the previous sale on Nov. 11. The monetary authority has let the yields on both bills rise twice since it raised benchmark lending and deposit rates Oct. 19, the first increase since 2007, to help curb inflation.

A government report on Nov. 11 showed inflation quickened to 4.4 percent in October, the fastest pace in two years.

--Sonja Cheung and Belinda Cao. Editors: Ven Ram, Andrew Janes

To contact the reporter on this story: Sonja Cheung in Hong Kong at scheung58@bloomberg.net; Belinda Cao in Beijing at lcao4@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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