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China Money Rate Drops Most in Two Weeks as PBOC Adds Capital

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Dec. 25 (Bloomberg) -- China’s money-market rate dropped the most in two weeks on speculation the supply of cash will improve as the central bank adds more funds to the financial system. The yuan was little changed against the dollar.

The People’s Bank of China conducted 110 billion yuan ($17.6 billion) of 28-day reverse repurchase contract operations today, the most since Nov. 6, according to a statement on its website. The yield on the securities was 3.6 percent, unchanged from the previous sale.

“As long as the central bank keeps injecting capital through reverse repos, there won’t be a year-end cash crunch,” said Wang Huane, a senior trader at Qilu Bank Co. in Jinan, capital of the eastern province of Shandong.

The 14-day repurchase rate, which measures interbank funding availability, tumbled 23 basis points to 4.38 percent as of 4:30 p.m. in Shanghai, the biggest drop since Dec. 7, 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, rose one basis point to 3.35 percent, according to data compiled by Bloomberg.

The yield on the 2.95 percent government bond due August 2017 dropped one basis point to 3.26 percent, according to the Interbank Funding Center. A basis point is 0.01 percentage point.

China’s yuan traded at 6.2345 per dollar, from 6.2339 yesterday, according to the China Foreign Exchange Trade System. The central bank weakened the reference rate by 0.03 percent to 6.2931, the lowest since Nov. 19.

Twelve-month non-deliverable forwards fell 0.08 percent to 6.3317, a 1.5 percent discount to the onshore spot rate. One-month implied volatility, a measure of expected moves in exchange rates used to price options, was unchanged at 1.8 percent.

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net

To contact the editor responsible for this story: John Liu at jliu42@bloomberg.net

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