China’s benchmark money-market rate climbed the most in two weeks as tax payments drained funds from the financial system.
The seven-day repurchase rate, a gauge of interbank funding availability, surged 36 basis points, or 0.36 percentage point, to 3.07 percent as of 4:16 p.m. in Shanghai, based on a weighted average by the National Interbank Funding Center. That was the biggest increase since April 8.
“Tax payments this week are likely to drive the seven-day repo to around 4 percent,” said Hong Ben, an analyst at Ningbo city-based Yinzhou Bank in Zhejiang province. “We continue to expect a net withdrawal in open-market operations, which could put further pressure on the market.”
Banks need to park corporate tax payments at the central bank in the month after the quarter-end and this often drives money-market rates higher. The People’s Bank of China drained 100 billion yuan ($16 billion) in open-market operations today by issuing 28-day repurchase contracts at 4 percent, according to a statement on the website. That compares with 93 billion yuan of 14- and 28-day agreements maturing today.
“The repo sales were in line with market expectations,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. “Funding needs for tax payments increased, pushing up the seven-day repo.”
The central bank said it will lower reserve-requirement ratios at county-level rural commercial lenders by two percentage points and those for county-level rural cooperatives by 0.5 percentage point from April 25, according to a statement posted on its website today. The change won’t affect liquidity levels in the banking system, the PBOC said in the statement.
The one-year interest-rate swap, the fixed payment needed to receive the floating seven-day repo, fell two basis points to 3.78 percent. The rate climbed to 3.86 percent earlier after the reserve-requirement announcement.
The yield on government bonds due March 2024 climbed five basis points to 4.4 percent, according to prices from the National Interbank Funding Center.
To contact Bloomberg News staff for this story: Helen Sun in Shanghai at firstname.lastname@example.org