China Money Rate Drops to 2-Week Low as Reserve Cut Takes Effect

China’s money-market rate declined to the lowest level in two weeks on speculation the cash supply will improve following a cut in banks’ reserve requirements.

The seven-day repurchase rate, which measures interbank funding availability, fell for a second day after the central bank’s second reduction in the amount of cash lenders must set aside took effect on Feb. 24. The People’s Bank of China gauged demand for three-month bill sales planned for this week, according to a trader at a primary dealer required to bid at the auctions.

“The market is starting to react to the new reserve ratio,” said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai. “If the sale of three-month bills resumes on Thursday, that may show the central bank is very cautious about implementing easing measures.”

The repo rate dropped 82 basis points, or 0.82 percentage point, to 3.66 percent as of 4:55 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It touched 3.63 percent, the lowest since Feb. 10.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repo rate, rose one basis point to 3.36 percent, according to data compiled by Bloomberg.

The monetary authority has suspended auctions of three- month bills for nine weeks and one-year notes for eight weeks.

The yield on the 3.14 percent government bonds due February 2017 dropped one basis point to 3.21 percent, according to the Interbank Funding Center.

--Judy Chen. Editors: Simon Harvey, Ven Ram

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

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

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