China Repo Climbs as Banks Hoard Cash for Reserve Requirements
China’s benchmark money-market rate rose, following yesterday’s biggest decline in two months, as banks hoard cash to meet reserve requirements due today.
The People’s Bank of China conducted 40 billion yuan ($6.3 billion) of 14-day reverse repurchase agreements at a yield of 4 percent and 5 billion yuan of seven-day contracts at a yield of 3.8 percent today, according to a trader at a primary dealer required to bid at the auctions. The central bank pumped 225 billion yuan into the financial system this week, the biggest injection since January, data compiled by Bloomberg shows.
“The seven-day repo rate remains elevated before today’s reserve-requirement payment,” said Ju Wang, a Barclays Capital strategist in Singapore. “There are also some negative factors for liquidity at the beginning of July such as fiscal revenue collection and large companies’ dividend payouts. We expect liquidity to gradually improve.”
The seven-day repurchase rate, a gauge of funding availability in the financial system, rose 15 basis points to 4.02 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.
China’s economy is still weak and the central bank will cut banks’ reserve requirements “soon,” UBS AG wrote in a report yesterday. The China Banking Regulatory Commission may scrap a 75 percent loan-to-deposit ratio requirement in its new bank liquidity risk management rules yet to be released, Economic Information Daily reported today, citing an unidentified person close to the regulator.
The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, added five basis points, or 0.05 percentage point, to 2.61 percent in Shanghai, according to data compiled by Bloomberg. The yield on five-year government bonds dropped two basis points to 2.80 percent, according to the Interbank Funding Center.
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