China Money Rate Drops to One-Week Low as Injection Continues

China’s benchmark money-market rate fell to a one-week low after the central bank added funds to the financial system by selling 14-day reverse-repurchase contracts for the first time in three weeks.

The People’s Bank of China injected 33 billion yuan ($5.4 billion) via the agreements at 4.1 percent today, according to three traders at a primary dealer required to bid at the auctions. That compared with an addition of 16 billion yuan when it issued the same contracts on Oct. 31 at 4.3 percent. The monetary authority added 35 billion yuan on Nov. 19 via seven-day reverse repos sold at 4.1 percent.

The seven-day repurchase rate, a gauge of funding availability in the banking system, fell 20 basis points, or 0.2 percentage point, to 4.63 percent as of 10:31 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It dropped 82 basis points this week from a two-week high of 5.45 percent on Nov. 15.

“The PBOC resumed the 14-day reverse-repo sales to prevent rates from rising too much and too fast, so that it can continue to realize the goal of maintaining a neutral to tight policy stance,” said Zuo Junyi, an analyst at Founder Securities Co. in Beijing. “I don’t see that will change before the first quarter next year.”

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, rose one basis point to 4.57 percent, according to data compiled by Bloomberg.

Bond Auction

The yield on the 4.08 percent government bonds due August 2023 jumped 13 basis points to 4.73 percent, according to data from the Interbank Funding Center. That was the highest for a benchmark 10-year note since Bloomberg started to compile the ChinaBond data in September 2007.

The Ministry of Finance auctioned 28.15 billion yuan of 10-year bonds yesterday at a yield of 4.71 percent, according to a statement on China Central Depository & Clearing Co.’s website. That compared with a yield of 4.14 percent at the last sales of similar-maturity securities on Oct. 23.

“It’s no longer in China’s favor to accumulate foreign-exchange reserves” that now exceed a record $3.7 trillion, PBOC Deputy Governor Yi Gang said yesterday. “The marginal cost of accumulating foreign-exchange reserves has exceeded the marginal gains.”

Under China’s current foreign-exchange settlement system, the central bank has to purchase forex and sell the yuan, leading to an increase in the money supply.

A preliminary reading of a Purchasing Managers’ Index for November dropped to 50.4 from a final reading of 50.9 in October, according to a report from HSBC Holdings Plc and Markit Economics. The indicator fell short of the 50.9 median estimate of economists surveyed by Bloomberg News.

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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