China Repo Rises a 2nd Day as Reserve-Ratio Cut Seen Less Likely

China’s benchmark money-market rate rose as the central bank used open-market operations to alleviate a cash squeeze in the financial system, damping speculation a cut in banks’ reserve requirements is imminent.

The People’s Bank of China conducted 50 billion yuan ($7.9 billion) of seven-day reverse-repurchase agreements today at a yield of 3.35 percent, according to a trader at a primary dealer required to bid at the auctions. Consumer prices rose 1.8 percent from a year earlier in July, compared with 2.2 percent in June, the National Bureau of Statistics said in Beijing.

“The PBOC will probably continue to follow its prudent fine-tuning of monetary policy,” said Kumar Rachapudi, a strategist at Barclays Plc in Singapore. The market will probably interpret the reverse-repo injection as an indication that a reserve-ratio cut is unlikely in the near term, he said.

The seven-day repurchase rate, which measures interbank funding availability, increased three basis points to 3.29 percent in Shanghai, a weighted average compiled by the Interbank Funding Center shows.

China may set new property controls as early as this month after the central government’s inspection team returns to Beijing, the official China Securities Journal reported today. The PBOC will keep pursuing a “prudent” monetary policy and the economy will maintain stable growth, according to the monetary authority’s quarterly report published on its website on Aug. 2.

The one-year interest-rate swap, the fixed cost to receive the seven-day repo, fell eight basis points to 2.73 percent, data compiled by Bloomberg show. The yield on the 3.14 percent government bonds due February 2017 increased three basis points, or 0.03 percentage point, to 2.84 percent, according to the National Interbank Funding Center.

To contact Bloomberg News staff for this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

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

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