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China Money Rate Drops to 3-Month Low as Banks Reduce Borrowings

China’s overnight money-market rate fell to the lowest level in almost three months on speculation banks scaled back borrowings after meeting month-end cash requirements.

The one-day repurchase rate, which measures interbank funding availability, dropped 32 basis points to 2.07 percent as of 4:30 p.m. in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. It touched 2 percent earlier, the lowest level since June 11. The rate declined 62 basis points in the week and fell 134 basis points so far in 2012.

“Short-term cash supply is rebounding as banks have finished borrowing to boost their loan-to-deposit ratio,” said Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender.

The People’s Bank of China withdrew 54 billion yuan ($8.5 billion) of capital from the financial system, after three weeks of net injections, according to data compiled by Bloomberg. China’s policies will be biased toward policy easing to rein in risks to economic growth, Citigroup Inc. said in a report yesterday.

The central bank will either cut lenders’ reserve ratios or step up cash injections via reverse-repurchase contracts next month because banks need more funds to meet regulatory requirements before the quarter ends, China Merchant Bank’s Liu predicted.

The one-year swap rate, the fixed cost needed to receive the floating seven-day repurchase rate, was unchanged at 3.13 percent, according to data compiled by Bloomberg. The contract dropped one basis point this week.

The yield on the 3.14 percent government bond due February 2017 climbed one basis point to 3.08 percent today, according to the Interbank Funding Center. A basis point is 0.01 percentage point.

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