China Overnight Money Rate Rises Most Since June on Cash Crunch

China’s overnight money-market rate rose the most in eight weeks on speculation a cash shortage will worsen as the central bank refrains from lowering reserve requirements for major lenders.

The People’s Bank of China has gauged demand for seven- and 14-day reverse-repurchase operations tomorrow, according to a trader required to bid at the auctions. The nation’s financial institutions sold 3.8 billion yuan ($597 million) more foreign currency than they bought in July, the first net sales since April, PBOC data showed yesterday, suggesting capital outflows.

“Reverse repos are still not enough to maintain loose liquidity,” said Wang Huane, a senior bond trader at Qilu Bank Co. in Jinan, capital of the eastern Shandong province. “The liquidity outlook is also not good because of declining capital inflows.”

The one-day repurchase rate, which measures interbank funding availability, gained 45 basis points to 3.14 percent as of 4:30 p.m. in Shanghai, the biggest increase since June 20, according to a weighted average rate compiled by the National Interbank Funding Center.

The PBOC also asked banks to submit orders for an auction of 91-day repurchase agreements tomorrow, according to the trader.

Bonds Decline

The finance ministry sold 30.06 billion yuan of five-year bonds at an average yield of 2.95 percent, according to a trader at a finance company that participates in government debt auctions. That compared with the 2.89 percent median estimate in a Bloomberg News survey. The highest winning-bid yield at the sale was 3.02 percent and the auction drew bids for 1.27 times the amount offered, the trader said.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose three basis points, or 0.03 percentage point, to 2.88 percent, according to data compiled by Bloomberg. The yield on the 3.14 percent government bonds due February 2017 advanced six basis points to 2.95 percent, according to the Interbank Funding Center.

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

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

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