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China Money Rate Completes Weekly Increase as PBOC Drains Funds

China’s benchmark money-market rate posted the biggest weekly increase since June after the central bank drained funds from the financial system and damped speculation lenders’ reserve requirements will be eased.

The People’s Bank of China will keep pursuing a “prudent” monetary policy and the economy will maintain stable growth, it said in a quarterly report on its website yesterday. Capital flows will be “basically balanced” in the second half, the report added, suggesting an end to net inflows that boosted money supply. The monetary authority withdrew 86 billion yuan ($13.5 billion) from the banking system this week, according to data compiled by Bloomberg.

“Foreign-exchange inflows have probably been lower, which puts upward pressure on money-market rates,” said Kumar Rachapudi, an interest-rate strategist at Barclays Plc in Singapore. “Also, there were expectations for a reserve-ratio cut, which has not been delivered.”

The seven-day repurchase rate, which measures interbank funding availability, rose 24 basis points, or 0.24 percentage point, from a week ago to 3.39 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That was the biggest weekly increase since the period ended June 22. The rate slid nine basis points today.

Industrial and Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd. and Agricultural Bank of China Ltd. saw net deposits decline by about a combined 1.5 trillion yuan last month, 21st Century Business Herald reported today, citing bank data.

Slower Growth

China’s non-manufacturing industries expanded at a slower pace in July as growth in new orders moderated, an official survey indicated today. The purchasing managers’ index fell to 55.6 from 56.7 in June, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing today. A reading above 50 indicates expansion.

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, rose one basis points today to 2.62 percent, according to data compiled by Bloomberg. It was little changed on the week. The yield on 3.51 percent government bonds due February 2022 was little changed at 3.275 percent this week, according to the Interbank Funding Center.

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