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China Money Rate Climbs on Speculation PBOC Will Drain Capital

China’s money-market rate climbed for a second day on speculation the central bank will drain cash from the financial market this week to prevent a rebound in inflation.

The People’s Bank of China last week withdrew 101 billion yuan ($16.2 billion) of capital, compared with an injection of 379 billion yuan in the five days through Nov. 2, according to data compiled by Bloomberg. The PBOC yesterday kept the yield on seven-day reverse-repurchase contracts, which add cash to the system, unchanged at 3.35 percent for a 15th sale.

The seven-day repurchase rate, which measures interbank funding availability, gained 18 basis points to 3.35 percent as of 4:30 p.m. in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center.

“The market speculates the central bank will drain some capital this week to guide the seven-day repo rate back to 3.35 percent, which appears to be the level desired by the central bank,” said Wang Huane, a senior bond trader in Jinan at Qilu Bank Co.

A total of 404 billion yuan of reverse-repurchase contracts will mature this week, draining capital from banks, according to data compiled by China Merchants Bank. The central bank conducted a total of 186 billion yuan of reverse-repo operation yesterday.

Consumer prices in China climbed 1.7 percent from a year earlier, the least since January 2010, the statistics bureau reported on Nov. 9.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose two basis points, or 0.02 percentage point, to 3.22 percent, according to data compiled by Bloomberg.

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