China Money Rate Drops to 5-Day Low as Central Bank Adds Cash

China’s benchmark money-market rate dropped to a five-day low after the central bank last week added cash into the financial system for a third straight week.

The People’s Bank of China injected a combined 166 billion yuan ($25 billion) into banks in the last three weeks through open-market operations, after taking out a combined 153.5 billion yuan in the previous four weeks, according to data compiled by Bloomberg. Historically, the finance ministry has spent more funds in December than in other months to complete its budget, which will increase finance companies’ cash holdings, according to Liu Junyu, a bond analyst at China Merchants Bank Co. in Shenzhen.

“We’ll see an enormous increase in liquidity this month,” Liu said. “The money-market rate will decline to below 3 percent.”

The seven-day repurchase rate, which measures lending costs between banks, fell 24 basis points to 3.09 percent, according to a daily fixing published at 11 a.m. by the National Interbank Funding Center in Shanghai. The drop took the rate to the lowest level since Nov. 29. A basis point is 0.01 percentage point.

The finance ministry withdrew 986.3 billion yuan of fiscal deposits from the central bank in December 2009 and 1.04 trillion yuan in December 2008, central bank data show. Both figures were the biggest for those years.

The one-year interest swap rate, the fixed cost needed to receive the floating seven-day repo rate, dropped nine basis points to 3.02 percent, the lowest level since Nov. 24, according to data compiled by Bloomberg.

The yield on the 3.29 percent note due in September 2020 rose two basis points to 3.91 percent, according to the National Interbank Funding Center.

--Belinda Cao. Editors: Ven Ram, Simon Harvey

To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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