China Money Rate Drops Most in Two Months as Cash Demand Wanes

China’s benchmark money-market rate fell the most in more than two months, signaling cash demand declined after banks met their quarter-end funding requirements.

The nation’s lenders typically boost deposits before reporting their financial positions to the central bank at the end of each quarter. That requires them to set aside more funds as reserves at the start of the following month. The People’s Bank of China drained 20 billion yuan ($3.2 billion) yesterday at a sale of 28-day repurchase agreements, after halting the operation for the first time in four months on June 26.

The seven-day repurchase rate, a gauge of interbank funding availability, fell 54 basis points, or 0.54 percentage point, to 3.91 percent as of 4:14 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That’s the biggest drop since April 16, and comes after the rate surged 45 basis points yesterday to 4.45 percent.

“Following the cash hoarding last month for quarter-end regulatory checks, the payment of reserves brought by the larger deposit base can continue to affect liquidity into the following month,” said Wang Ming, marketing director at Shanghai Yaozhi Asset Management LLP. “The market has sailed through the most difficult time, and we expect the seven-day repo rate to gradually fall to around 3.5 percent in coming days.”

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, declined one basis point to 3.71 percent, according to data compiled by Bloomberg. It climbed to 3.78 percent yesterday, the highest level since May 20.

Improving Economy

China’s official Purchasing Managers’ Index for manufacturing rose to 51 last month, the highest level in 2014, according to data published yesterday. A private output gauge was at 50.7, this year’s first reading above 50, the dividing line between expansion and contraction, data from HSBC Holdings Plc and Markit Economics showed.

The yield on the government’s 4 percent bonds due June 2024 rose eight basis points to 4.2 percent, according to data from the National Interbank Funding Center.

The Ministry of Finance sold 28 billion yuan of seven-year notes at 4.02 percent today, according to a statement posted on its website. That compared with a median estimate of 4 percent in a Bloomberg News survey.

China plans to include investment in intellectual property research and development in its gross domestic product calculation, which will boost the figure “substantially,” the 21st Century Business Herald reported, without citing anyone. The National Bureau of Statistics has finished a draft plan for the revision, according to the report.

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 Anil Varma, Robin Ganguly

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