China Money Rate Completes Weekly Increase as PBOC Drains Cash

China’s key money-market rate had a weekly gain as the central bank drained cash from the financial system for the first time in three months.

The People’s Bank of China removed a net 22 billion yuan ($3.4 billion) of capital from the interbank market this week by issuing bills and repurchase contracts, the first withdrawal since July, according to data compiled by Bloomberg. China’s inflation is “under control” and will drop to 5.8 percent by year-end, Yu Yongding, a researcher with the Chinese Academy of Social Sciences and former central bank adviser, said in Beijing.

“The capital draining showed the central bank still doesn’t want to loosen monetary policy at the moment,” said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai. “But at the same time it has no motivation to tighten more since inflation is slowing.”

The seven-day repurchase rate, which measures interbank funding availability, rose 31 basis points this week to 3.45 percent as of the close in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. It dropped two basis points, or 0.02 percentage point, today.

The People’s Bank of China yesterday lowered the yield on three-year bills for the first time in 15 months. The move is a signal that monetary policy has returned to “neutral,” which will drive bond yields lower, Jiang Chao and Chen Lan, bond analysts at Guotai Junan Securities Co., the nation’s biggest brokerage by revenue, wrote in a research note today.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, increased six basis points this week to 3.51 percent in Shanghai, according to data compiled by Bloomberg. It rose two basis points today.

The yield on the 3.94 percent government bond due January 2021 dropped three basis points this week to 3.75 percent, according to the Interbank Funding Center. It was unchanged today.