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China Money Rate Drops Most in 13 Months as Inflows Seen Rising

China’s benchmark money-market rate fell the most in 13 months on speculation a government plan to step up support for the economy will attract overseas capital, boosting cash in the financial system.

The rate extended a decline from this year’s highest level as outgoing Premier Wen Jiabao said in a report at the National People’s Congress in Beijing that China’s budget deficit will increase 50 percent as expenditure is bolstered to “maintain support for economic growth.” The nation kept its expansion target for 2013 at 7.5 percent, the same as last year. The People’s Bank of China refrained from conducting money-market operations today, according to a trader at a primary dealer required to bid at the auctions.

“Capital inflows may be rising,” said Wang Huane, a senior bond trader at Qilu Bank Co in Jinan, capital of the Shandong province. “Also, banks no longer need to hoard cash after the month-end passed.”

The seven-day repurchase rate, which measures interbank funding availability, slid 110 basis points, or 1.1 percentage points, to 3.19 percent in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. That’s the biggest drop since Jan. 19, 2012.

The PBOC refrained from injecting or withdrawing cash from the banking system today, after gauging demand yesterday for seven- and 14-day reverse-repurchase contracts, and 28-day repurchase contracts. The central bank absorbed 915 billion yuan ($147 billion) from markets in the last two weeks.

Yuan Positions

Yuan positions at local banks accumulated from foreign-exchange purchases rose 134.6 billion yuan in December, the biggest addition in 11 months, according to central bank data. The measure of capital inflows may have increased by 100 billion yuan in January, the official China Securities Journal reported last month.

The seven-day repo rate may remain between 2.75 percent and 3.5 percent in the coming weeks on extra liquidity, Societe Generale SA said in a note to clients. About 463 billion yuan of central bank bills will mature next quarter, it said.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, dropped one basis point to 3.24 percent, according to data compiled by Bloomberg.

The yield on the 3.15 percent government bond due January 2018 rose one basis point to 3.29 percent, according to the Interbank Funding Center.

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