China Money Rate Completes Longest Rising Streak in Eight Months

China’s benchmark money-market rate rose for an eighth day, the longest stretch since July, after a central bank official said the nation will make “substantial progress” in freeing up interest rates.

People’s Bank of China Deputy Governor Yi Gang said the monetary authority will focus on deposit-rate reform this year and next, Caixin magazine reported on its website March 22. He was speaking at a forum in Beijing. China won’t use fiscal stimulus to encourage investment, and instead will focus on quality of growth, Finance Minister Lou Jiwei said at the same event, comments posted on Sina.com’s website show. The central bank gauged demand for 14- and 28-day repurchase contracts today, according to a trader.

“While much needed, the deposit-rate reform is likely to raise costs throughout the economy and will be a drag on growth,” said Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong. Lou’s comments are positive for the long-term potential, but may temper market hopes for policy stimulus, he said.

The seven-day repurchase rate, a gauge of funding availability in the interbank market, climbed one basis point to 3.58 percent as of 4:30 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The rate rose as much as 12 basis points earlier to 3.68 percent, the highest since March 5, after advancing 97 basis points last week.

PMI Falls

A preliminary reading of China’s Purchasing Managers’ Index of manufacturing was 48.1 in March, below the 48.7 median forecast in a Bloomberg News survey and the dividing line of 50 between expansion and contraction.

The Chinese economy may expand about 7 percent this year, and quarterly growth may trend lower in 2014, China Securities Journal reported today, citing Wang Jian, a researcher under the National Development and Reform Commission.

The PBOC had issued a 50 billion yuan ($8 billion) re-lending quota to support financial institutions for lending to small and micro companies, according to a March 21 statement on its website.

The central bank has withdrawn a net 876 billion yuan from the banking system via open-market operations since the week-long Lunar New Year holidays in early February, data compiled by Bloomberg show. It also asked lenders to submit orders today for seven- and 14-day reverse-repurchase agreements and 91-day bills, said the trader at a primary dealer required to bid at the auctions.

In the interest-rate swaps market, the fixed payment to receive the floating seven-day repo rate for one year increased three basis points, or 0.03 percentage point, to 4.22 percent, after climbing 14 basis points last week.

The yield on the 4.08 percent sovereign bonds due August 2023 was unchanged at 4.50 percent, after rising five basis points last week, according to prices from the National Interbank Funding Center.

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

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Simon Harvey, Anil Varma

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