China Money Rate Rises to Three-Week High on Holiday Cash Demand

China’s benchmark money-market rate climbed to a three-week high as demand for cash increased ahead of the weeklong Lunar New Year holiday that starts Feb. 11.

The People’s Bank of China today gauged appetite for an offering of seven-day reverse repurchase agreements tomorrow, according to a trader at a primary dealer required to bid at the auctions. The monetary authority issued 80 billion yuan ($12.9 billion) of the contracts yesterday at 3.35 percent.

“There is demand for cash ahead of the holidays,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB. “Given the PBOC’s willingness to do reverse repos more frequently, big spikes in rates may be avoided.”

The seven-day repurchase rate, which measures interbank funding availability, rose 11 basis points to 3.22 percent as of 10:48 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That’s the highest level since Jan. 7. The rate has fallen 136 basis points, or 1.36 percentage point, in January, headed for the first drop in four months.

The PBOC said Jan. 18 it will start daily short-term liquidity operations as additional tools to manage cash supply. The so-called SLOs, which involve contracts maturing in less than seven days, will supplement regular open-market operations held each Tuesday and Thursday.

The one-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, was steady at 3.18 percent, according to data compiled by Bloomberg. It fell 16 basis points this month.

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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