China Repo Rate in Biggest Weekly Gain Since March; Yuan Steady

China’s money-market rate had its biggest weekly gain since March on speculation cash supply will wane as the central bank drains capital. The yuan was steady.

The seven-day repurchase rate, which measures interbank funding availability, climbed 73 basis points this week, or 0.73 percentage point, to 3.70 percent as of 4:32 p.m. in Shanghai, a weighted average compiled by the National Interbank Funding Center shows. It rose 49 basis points today.

The People’s Bank of China drained 35 billion yuan ($5.7 billion) of capital from the financial system in five days, the first withdrawal in four weeks, data compiled by Bloomberg show. JPMorgan Chase & Co. said sales of one-year bills may resume by the end of June as the central bank intensifies efforts to limit growth in money supply.

“We expect to see the PBOC be more aggressive in open-market operations,” said Patrick Wu, head of China trading at JPMorgan in Shanghai. “I expect that after increasing the size of 91-day bills to a certain level, say 100 billion yuan, the PBOC will resume issuing one-year bills.”

The People’s Bank on May 9 auctioned three-month bills for the first time since December 2011, having relied on 28- or 91-day repurchase contracts to tie up funds in money-market operations since February.

‘Liquidity Tight’

“The central bank’s capital withdrawals has made liquidity a bit tight,” said Wang Huane, a senior trader at Qilu Bank Co. in Jinan, capital of the eastern Shandong province.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose one basis point this week and today to 3.28 percent, according to data compiled by Bloomberg.

The yuan was little changed this week at 6.1419 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It climbed 0.12 percent today and traded at a 0.94 percent premium to the daily fixing, close to the maximum allowed 1 percent.

The PBOC set the reference rate 0.16 percent stronger at 6.1997 per dollar, compared with 6.2016 a week ago. The currency has gained 1.6 percent against the dollar in the past three months, the second-best performer among Asia’s 11 most-traded currencies tracked by Bloomberg.

“The moves in the reference rate show the central bank is favoring a stronger currency,” said Liu Dongliang, a senior analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender. The yuan may touch 6.05 per dollar this year, he said.

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

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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