China Repo Rate Drops by Most in Six Months on Cash Injections

China’s money-market rate had its biggest monthly drop since July after the central bank added the most cash to the financial system in almost four years.

The People’s Bank of China injected 477 billion yuan ($75.6 billion) this month through Jan. 19, the most since Bloomberg began collecting the data in March 2008. The PBOC surprised many economists by not lowering lenders’ reserve-requirement ratios ahead of last week’s Lunar New Year holidays to boost supply.

“The reverse repo being done from Jan. 17 to Jan. 19 eased liquidity conditions in the system,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB. “The central bank might want the repo rate to drop to around 3 percent to ensure there’s enough money in the system to support growth. It can achieve that by cutting the reserve ratio.”

The seven-day repurchase rate, a gauge of funding availability in the financial system, dropped 127 basis points this month to 4.33 percent as of 4:30 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The rate fell three basis points, or 0.03 percentage point, today.

As the 352 billion yuan of 14-day reserve-repurchase agreements will mature this week, it will create pressure on liquidity conditions again, Credit Agricole’s Cheung said.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, gained 22 basis points in January to 3.14 percent, according to data compiled by Bloomberg. It rose three basis points today.

The yield on the 3.41 percent government bonds due June 2020 fell eight basis points this month to 3.42 percent, according to the National Interbank Funding Center. The rate rose two basis points today.

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