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China Money Rate Increases as Banks Hoard Cash Before Holiday

China’s 21-day money-market rate climbed for the first time this week on speculation banks are hoarding cash to meet month-end capital requirements and holiday cash withdrawals.

The People’s Bank of China gauged demand for an offering of seven- and 14-day reverse repurchase contracts tomorrow, according to a trader required to bid at the auctions. The central bank said on Jan. 18 it will conduct short-term liquidity operations, in addition to the reverse repo auctions held every Tuesday and Thursday, to improve cash supply. Local markets will be shut from Feb. 11 through Feb. 15 for the Lunar New Year holiday.

“Money-market rates will go higher before the holiday,” said Chen Lan, a bond analyst at Guotai Junan Securities Co. in Shanghai. “But the liquidity operations will help prevent a serious cash shortage.”

The 21-day repurchase rate, which measures interbank funding availability, rose 24 basis points, or 0.24 percentage point, to 3.36 percent as of 4:30 p.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, climbed three basis points to 3.22 percent, data compiled by Bloomberg show.

The finance ministry issued 30 billion yuan ($4.8 billion) of seven-year bonds at a yield of 3.42 percent, compared with a median estimate of 3.45 percent in a Bloomberg News survey.

The yield on the 3.25 percent government bonds due September 2019 was unchanged at 3.46 percent, according to the Interbank Funding Center.

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