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China Money Rate Drops for Third Day on Cash-Boost Speculation

China’s benchmark money-market rate declined for a third day on speculation a cash squeeze will ease as tax payments deposited at the monetary authority in October flow back into the banking system.

The seven-day repurchase rate, a gauge of liquidity in the financial system, climbed on Oct. 30 to the highest level since a record cash crunch in June. Borrowing costs retreated as the People’s Bank of China conducted reverse-repurchase agreements to inject funds. The central bank’s money-market operations added a net 29.1 billion yuan ($4.8 billion) to commercial banks last week, after draining 102.5 billion yuan in the two weeks ended Oct. 25, data compiled by Bloomberg show.

“Now that the rates have come down after last week’s injections, the central bank may reduce the amount of reverse-repo sales this week, or even skip it,” said Chen Long, a bond analyst at Bank of Dongguan. “The upcoming fiscal disbursement in November and December will make the liquidity relatively ample, and the PBOC will refrain from adding too much money into the market.’

The seven-day repo rate declined 13 basis points, or 0.13 percentage point, to 4.51 percent as of 11:13 a.m. in Shanghai, according to a daily fixing by the National Interbank Funding Center. That was the lowest level since Oct. 23 and compares with an average 3.95 percent this year. The overnight repo rate slid 17 basis points to 4.19 percent.

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo, increased one basis point to 4.16 percent.

The central bank asked lenders today 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.

The yield on the 4.08 percent government bonds due August 2023 rose one basis point to 4.18 percent, according to data provided by the Interbank Funding Center.

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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