China’s benchmark money-market rate rose for a second day on speculation cash demand is rising ahead of holidays and as banks hoard cash to meet year-end reserve- ratio requirements.
Money supply also became tighter this week due to a drop in the amount of central bank bills and repurchase agreements that are maturing. Debt redemptions will total 17 billion yuan ($2.7 billion) this week, compared with about 100 billion yuan per week on average in the past few months, said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong. Financial markets are closed on Jan. 2-3 for public holidays. Chinese New Year starts on Jan. 23.
“It’s the year-end effect,” said Ju Wang, a Singapore- based senior strategist at Barclays Capital. “Demand for cash will increase as people prepare for the Chinese holidays and this will tighten liquidity.”
The seven-day repurchase rate, a gauge of funding availability in the financial system, rose 36 basis points, or 0.36 percentage point, to 3.60 percent at 4:30 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.
The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, gained five basis points to 2.79 percent, according to data compiled by Bloomberg. The benchmark 10-year bond yield was little changed at 3.46 percent. The central bank will sell one billion yuan ($158 million) of three- month bills at an auction tomorrow.
The central bank cut the amount of cash that banks must set aside as reserves for the first time since 2008 this month as Europe’s debt crisis dimmed the outlook for exports and growth. The 50 basis-point decrease in reserve-requirement ratios took effect on Dec. 5.
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