China Money Rate Jumps Most This Year on Bets PBOC to Drain Cash

China’s benchmark money-market rate jumped the most this year on speculation the central bank will drain funds from the financial system to cap property prices and inflation.

China may tighten monetary policy because of excessive market liquidity and rising real-estate prices, according to a front-page commentary written by reporter Ren Xiao in China Securities Journal today. The People’s Bank of China plans to take as much as 5 billion yuan ($802 million) from banks by issuing 28-day repurchase contracts today, according to a trader at a primary dealer required to bid at the auctions.

“There is concern over tightening of policy,” said Wee- Khoon Chong, a Hong Kong-based strategist at Societe Generale SA. “But I don’t think the rise in money rates is sustainable.”

The seven-day repurchase rate, which measures interbank funding availability, rose 38 basis points, or 0.38 percentage point, to 3.68 percent at 10:22 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That’s the biggest increase since Dec. 31. The rate rose to 4.1 percent earlier, the highest level since Feb. 7.

China may manage liquidity in the first half by selling repos or reverse repos, the commentary said. Home sales in China’s 10 biggest cities almost quadrupled to 8.5 million square meters (91.5 million square feet) in the first five weeks from last year, property data and consulting firm China Real Estate Information Corp. said on Feb. 19.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, added two basis points, or 0.02 percentage point, to 3.27 percent, according to data compiled by Bloomberg.

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