China’s benchmark money-market rate fell to a one-week low on signs the central bank will add more funds to the financial system via reverse-repurchase agreements.
The People’s Bank of China gauged demand for seven- and 14-day reverse repos this week, according to a trader at a primary dealer required to bid at the auctions. It also asked banks to submit orders for 28-day repurchase contracts and 91-day bills this morning, the trader said.
The seven-day repo rate, a gauge of funding availability in the banking system, fell 12 basis points, or 0.12 percentage point, to 4.06 percent as of 4:14 p.m. in Shanghai, a weighted average compiled by the National Interbank Funding Center showed. It touched 3.99 percent earlier, the lowest since Aug. 16. The rate increased 53 basis points over the last two weeks. The Shanghai overnight fixing rate rose 38 basis points to 3.34 percent in the two weeks through Aug. 23.
“It is expected that the PBOC will carry out more reverse-repo operations on Tuesday” after the Shanghai overnight fixing rate and the seven-day repo rate climbed for a second week, said Gerry Alfonso, a Shanghai-based trader at Shenyin & Wanguo Securities Co.
The one-year interest rate swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, dropped two basis points to 4.08 percent, according to data compiled by Bloomberg. It touched 4.05 percent, the lowest level since Aug. 15.
“Reverse-repo operations themselves do not indicate a loosening of the monetary policy,” according to a commentary written by Xu Shaofeng today in the Financial News, a PBOC publication. “It only means the monetary authority is trying to meet the short-term liquidity requirement in the banking system. Using it, along with the bill rollovers, is an innovative monetary policy.”
The central bank added 72 billion yuan ($11.8 billion) of funds to the market last week, compared with 47.5 billion yuan the week before, according to data compiled by Bloomberg. The Ministry of Finance doesn’t plan to auction bonds this week.
The yield on the government’s 3.38 percent bonds due May 2023 fell three basis points to 3.96 percent, according to prices from the Interbank Funding Center. The yield climbed 26 basis points over the previous three weeks.