China’s benchmark money-market rate rose for a fourth consecutive week on speculation the central bank will tighten monetary policy further to curb inflationary pressures.
The People’s Bank of China raised interest rates for the first time since 2007 on Oct. 19 and has lifted reserve requirements for banks five times this year, with the latest increase taking effect on Nov. 29. Government data this month will show consumer prices climbed 4.7 percent from a year earlier in November, the most since August 2008, according to the median estimate of economists surveyed by Bloomberg.
“The reserve-ratio hikes have helped drain a lot of liquidity,” said Yang Mo, a money dealer at Industrial Bank Co. in Shanghai. “Some banks were reluctant to lend as they wanted to show better cash positions on their books at the month-end. People are concerned the central bank may step up tightening this month.”
The seven-day repurchase rate, which measures lending costs between banks, climbed 60 basis points this week and dropped two basis points today to 3.33 percent, according to a daily fixing published at 11 a.m. by the National Interbank Funding Center in Shanghai. The rate rose to 3.36 percent on Dec. 1, the highest since October 2008. A basis point is 0.01 percentage point.
The central bank sold 1 billion yuan ($150 million) of one-year bills and the same amount of three-month securities at open-market auctions this week. Both amounts were the smallest in more than three years. The yield on the one-year bills was 2.3437 percent and the rate was 1.8131 percent for the three-month notes, both unchanged for a third week. A net 38 billion yuan has been added into the financial system as a result of the open-market operations.
Yang said the central bank needs to let yields rise to attract demand should it seek to drain more cash through open-market bill sales.