China Money Rate Snaps Seven-Day Increase as Cash Crunch Eases

China’s benchmark money-market rate declined for the first time in eight days as a cash squeeze caused by fiscal-deposit and corporate-tax payments eased.

The People’s Bank of China drained a net 58 billion yuan ($9.5 billion) in the week ended Oct. 25, the most since February, and hasn’t offered reverse-repurchase contracts since Oct. 17, data compiled by Bloomberg show. Corporate tax payments contributed to the spike in rates, Pin Ru Tan, a Hong Kong-based interest-rate strategist at HSBC Securities Asia Ltd., said Oct. 23. Companies pay levies in the month following the quarter-end, typically leading to higher government income that needs to be parked at the central bank as fiscal deposits.

“The tightness last week was mainly due to the fiscal-deposit payments and corporate-tax payments, especially when it happened after the PBOC suspended reverse repos,” said Song Qiuhong, an analyst at Shunde Rural Commercial Bank in Foshan. “Now that it’s come to an end, we expect rates to fall back.”

The seven-day repurchase rate dropped six basis points, or 0.06 percentage point, to 5 percent as of 4:16 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It touched 5.06 percent on Oct. 25, the highest since it surged to a record 12.45 percent in June. A daily fixing of the rate released by the center climbed 138 basis points last week, the most since the week ended June 23.

The overnight repo rate was little changed at 4.56 percent today, while the 14-day repo rate climbed 49 basis points to 6.39 percent.

‘Policy Continuity’

The central bank today asked lenders to submit orders for 91-day bills, 28-day repurchase contracts, as well as seven- and 14-day reverse repos as usual, according to a trader at a primary dealer required to bid at the auctions.

“Out of concerns over the monetary policy continuity, the chance is small to resume reverse repos in the short-term,” said Yang Feng, a bond analyst at Citic Securities Co. in Beijing, wrote in a report today. “On the other hand, the PBOC has a strong intention to maintain stable rates after the June crunch, so the tightness should ease soon.”

The one-year interest-rate swap, the fixed payment needed to receive the floating seven-day repo, gained four basis points to 4.11 percent, according to data compiled by Bloomberg. It rose 11 basis points last week, the most since August.

The yield on government bonds due August 2023 declined one basis point to 4.22 percent, according to data from the Interbank Funding Center. The yield on 10-year sovereign notes rose 10 basis points last week to 4.23 percent, the biggest weekly advance since August, according to ChinaBond data.

The China National Audit Office has submitted its report on local government debt to the State Council and the size of the borrowings is more than 14 trillion yuan, Caijing magazine reported, without saying where it got the information.

To contact Bloomberg News staff for this story: Helen Sun in Shanghai at hsun30@bloomberg.net

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

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