China Money Rate Drops to Four-Month Low on Seasonal-Effect Bets

China’s benchmark money-market rate fell to the lowest level in four months on bets that seasonal effects will keep funding costs low even as the central bank drains cash from the banking system.

The People’s Bank of China pulled a net 108 billion yuan ($17.7 billion) this week by selling repurchase contracts, according to data compiled by Bloomberg. This follows a net withdrawal of 450 billion yuan in the previous week, as reverse repo contracts issued before the Lunar New Year holiday matured.

The seven-day repurchase rate, a gauge of funding availability in the banking system, fell 10 basis points today and 81 basis points this week to 3.63 percent in Shanghai, according to a fixing by the National Interbank Funding Center. That’s the lowest level since Oct. 22.

“China’s money-market rates have strong seasonality, with the period after the Lunar New Year through early April seeing ample liquidity,” said Wang Ming, marketing director at Shanghai Yaozhi Asset Management LLP. “The central bank’s repo operations are only draining what it deems as excessive cash supply in the market.”

The PBOC conducted repos this week for the first time since June after aggregate financing, the broadest measure of credit, climbed to a record 2.58 trillion yuan in January. Manufacturing is shrinking at the fastest pace in seven months, according to a reading of 48.3 in a preliminary Purchasing Managers’ Index released by HSBC Holdings Plc. and Markit Economics yesterday. A number below 50 indicates contraction.

Rate Swaps

One-year interest-rate swaps, the fixed payment for receiving the floating seven-day repo rate, fell four basis points today and eight basis points this week to 4.68 percent as of 10:24 a.m. in Shanghai, according to data compiled by Bloomberg. It earlier declined as much as seven basis points to 4.65 percent, the lowest level since Dec. 4.

The yield on the 4.08 percent government bonds due August 2023 declined three basis points, or 0.03 percentage point, to 4.53 percent, data from the National Interbank Funding Center showed. The rate climbed three basis points from Feb. 14.

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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