China’s money-market rate dropped for a second day on speculation cash supply will increase as the central bank adds funds to the financial system.
The People’s Bank of China gauged demand for seven- and 14-day reverse repurchase contracts today, a sign it will offer such securities in an auction tomorrow, according to a trader required to bid at the sales. The monetary authority injected a total of 265 billion yuan ($42 billion) via reverse repos yesterday, the second-biggest amount for a single day since Bloomberg started compiling the data in 2004. Financial markets in China opened this week after a weeklong holiday.
“The PBOC’s sustained, big capital injections have helped ease a cash shortage,” said Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender. “Cash supply is also rebounding because the holiday has passed.”
The seven-day repurchase rate, which measures interbank funding availability, dropped 60 basis points to 3.16 percent as of 10:57 a.m. in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center.
The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, declined two basis points, or 0.02 percentage point, to 3.19 percent, according to data compiled by Bloomberg.
The yield on the 3.41 percent government bond due March 2019 dropped one basis point to 3.37 percent, according to the Interbank Funding Center.
The central bank is unlikely to cut banks’ reserve requirements before the Chinese Communist Party’s 18th congress starting Nov. 8, according to China Merchant Bank’s Liu. The PBOC has lowered the reserve ratio three times since November to free up funds for lending.