China’s money-market rate dropped by the most in more than a week on speculation the central bank will add capital to the financial system to prevent a cash shortage before national holidays.
The People’s Bank of gauged demand for possible auctions of seven-, 14- and 28-day reverse-repurchase contracts this week, according to a trader required to bid at the auctions. The central bank injected a net 92 billion yuan ($14.8 billion) into the banking system using money-market operations last week, according to data compiled by Bloomberg.
“Liquidity is quite stable,” said Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender. “Banks are expecting the central bank to offer reverse repos if there is a jump in cash demand.”
The seven-day repurchase rate, which measures interbank funding availability, dropped 26 basis points to 3.16 percent as of 4:30 p.m. in Shanghai, the biggest decline since Dec. 13, according to a weighted average compiled by the National Interbank Funding Center.
Demand for cash climbs before the weeklong break for Chinese New Year commences Feb. 11, a period in which families exchange gifts and get together for meals. China also has a three-day holiday starting Jan. 1.
The one-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repo rate, was unchanged at 3.35 percent, according to data compiled by Bloomberg.
The yield on the 2.95 percent government bonds due August 2017 rose two basis points to 3.27 percent, according to the Interbank Funding Center. A basis point is 0.01 percentage point.