China Repo Rate Rises Toward 1-Week High on Year-End Cash Demand

Dec. 19 (Bloomberg) -- China’s benchmark money-market rate rose toward a one-week high on speculation banks are hoarding cash to meet year-end requirements and holiday withdrawals.

Lenders need to raise funds to shore up capital-adequacy ratios as a combined 360 billion yuan ($58 billion) of the central bank’s reverse-repurchase agreements mature this month, draining money from the financial system, said Liu Li-Gang, chief China economist in Hong Kong at Australia & New Zealand Banking Group Ltd. The People’s Bank of China gauged demand for an offer of seven- and 14-day reverse-repo contracts tomorrow, said a trader at a primary dealer required to bid at the sales.

“There’s a seasonal reason for rising money-market rates,” said Jeffrey Yap, the Hong Kong-based head of Asia fixed-income trading at Mizuho Securities Asia Ltd. “Over the course of the year-end, liquidity dries up as banks try to fund across the New-Year period and money-market rates get tight.”

The seven-day repurchase rate, a gauge of interbank funding availability, rose four basis points to 3.05 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The rate touched a one-week high of 3.07 percent on Dec. 17. It declined 255 basis points, or 2.55 percentage points, this year.

China’s economy will grow about 8.1 percent in 2013, slightly faster than this year as export gains quicken and consumption remains stable, Xinhua08.com reported yesterday, citing Sun Xuegong, an analyst at the National Development and Reform Commission’s research institute. The economy will expand 7.7 percent in 2012, the least since 1999, according to the median forecast of economists in a Bloomberg survey.

The one-year interest-rate swap, the fixed cost to receive the seven-day repo rate, rose three basis points to 3.37 percent, according to data compiled by Bloomberg. The rate climbed 45 basis points this year.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net