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China Repo Jumps to One-Month High as Holiday Cash Demand Rises

China’s benchmark money-market rate rose for a third day, touching a one-month high, as demand for funds increased in the run up to next week’s holidays.

The People’s Bank of China didn’t gauge demand for bill sales due tomorrow and instead asked banks to submit orders for 91-day repurchase agreements, according to a trader at a primary dealer required to bid at the auctions. The monetary authority has refrained from issuing three-month and one-year securities since Dec. 22 and Dec. 27, respectively. China’s financial markets will close April 2-4 for public holidays.

“There will be more demand for funding for the rest of this week,” said Weisheng He, a fixed-income trader at Citigroup Inc. in Shanghai. “Another reduction in the reserve ratio is possible either in April or May. Corporate tax payments due next month could turn liquidity tighter, gradually pushing up the inter-bank rate.”

The seven-day repurchase rate, a gauge of funding availability in the financial system, increased 23 basis points to 3.53 percent, the highest level since Feb. 28, in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It slid 207 basis points, or 2.07 percentage points, this quarter, the most since the first three months of 2011.

The PBOC has reduced banks’ reserve requirements twice since the start of December to prop up a slowing economy. China may cut the ratio as many as three times this year, by 50 basis points each time, Financial News reported today, citing Tang Jianwei, an analyst at Bank of Communications Co.

The one-year swap rate, the fixed cost to receive the seven-day repo rate, fell two basis points to 3.15 percent, taking this quarter’s advance to 23 basis points, according to data compiled by Bloomberg.

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