China Repo Rate Jumps Most in Month as Holiday Cash Demand Rises

China’s benchmark money-market rate jumped the most this month amid speculation cash demand is picking up before the Lunar New Year holiday.

The People’s Bank of China gauged demand for sales of seven-day reverse-repurchase contracts this week, according to a trader at a primary dealer required to bid at the auctions. Money-market operations drained funds from the financial system in each of the last four weeks. Demand for cash tends to climb before the weeklong Lunar New Year break, which commences Feb. 11, and aggravates funding stress as families exchange gifts, buy new clothes and get together for meals.

“Overall liquidity is getting a bit tighter with less reverse repos and Chinese New Year getting closer,” said Weisheng He, a Shanghai-based strategist at Citigroup Inc. Still, increases in money rates may be limited as the central bank is likely to step up cash infections, he said.

The seven-day repurchase rate, which measures interbank funding availability, climbed 30 basis points to 3 percent as of 10:21 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That was the biggest increase since Dec. 31.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, increased one basis point, or 0.01 percentage point, to 3.18 percent, according to data compiled by Bloomberg. It reached 3.13 percent last week, the lowest level since Nov. 12.

To contact the reporter on 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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