China Money Rate Reaches Three-Year High as Bill Sale Suspended

China’s money-market rate climbed to the highest level in more than three years as a worsening cash crunch prompted the central bank to suspend a bill sale.

The seven-day repurchase rate, which measures interbank funding availability, has more than doubled since June 14, when the People’s Bank of China ordered lenders to set aside more money as reserves for a sixth time this year. The central bank suspended a sale of bills tomorrow, according to a statement on its website today.

“Banks have to hoard cash to meet the regulator’s capital or loan-to-deposit requirements by the end of every quarter,” said Liu Junyu, a bond analyst at China Merchants Bank Co., the nation’s sixth-largest lender. “So we won’t see the shortage easing.”

The seven-day repo rate gained 47 basis points, or 0.47 percentage point, to 8.81 percent as of the 4:30 p.m. close in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. It touched 8.93 percent, the highest level since October 2007.

The 14-day repo rate declined 125 basis points to 7.34 percent, the biggest drop since Feb. 1. The slump in longer-term rates shows the cash shortage will probably ease from the start of next month, said Liu. A total of 372 billion yuan ($57.6 billion) of central bank bills and repurchase agreements will mature next month, compared with 601 billion yuan in June, he said.

One-year interest-rate swaps, the fixed cost needed to receive the floating seven-day repurchase rate, rose eight basis points to 3.94 percent, according to data compiled by Bloomberg. They touched 3.97 percent, the highest level since Feb. 22.

The yield on the 2.77 percent government bond due May 2012 gained two basis points to 3.63 percent, according to the Interbank Funding Center.

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