China’s benchmark money-market rate posted the biggest weekly decline this year as demand for cash eased after banks met quarter-end capital requirements.
The seven-day repurchase rate, a gauge of funding availability in the banking system, tumbled 120 basis points, or 1.20 percentage points, to 3.02 percent in Shanghai, according to a weighted average from the National Interbank Funding Center. That’s the biggest decline since the five days ended Dec. 27. The rate fell 107 basis points today, the most since March 6.
“There is ample cash available in the interbank market at the beginning of the month as quarter-end tightness eased,” said Huang Wentao, a Beijing-based analyst at China Securities Co. “The seven-day repo has a strong seasonality and early April usually sees rates stable and low. We expect the central bank to continue to drain funds through repos.”
The People’s Bank of China drained a net 62 billion yuan ($9.98 billion) through repurchase agreements this week, compared with 98 billion yuan in the five days ended March 28, data compiled by Bloomberg show. The PBOC will probably pull more funds by selling repo contracts this month, according to 11 of 19 analysts and traders surveyed by Bloomberg.
The monetary authority, at its first-quarter monetary policy committee meeting, reiterated it will “keep moderate liquidity” and “realize reasonable growth in loans and social financing,” according to a statement on the PBOC’s website yesterday.
The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, rose eight basis points this week to 4.33 percent, data compiled by Bloomberg show. It fell seven basis points today.
The probability of defaults in China is relatively high, Alfred Schipke, the International Monetary Fund’s senior resident representative for China, said yesterday. Emerging markets, which are increasingly dependent on China for growth, may suffer as the world’s second-largest economy decelerates, the IMF said in its latest World Economic Outlook report.
The PBOC will “closely monitor” new global and domestic economic and financial developments and continue to keep prudent monetary policy, according to yesterday’s statement.
The yield on 10-year government bonds rose one basis point today to 4.55 percent, according to the National Interbank Funding Center.
To contact Bloomberg News staff for this story: Helen Sun in Shanghai at firstname.lastname@example.org