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China Money-Market Rate Declines as Yuan Gains May Spur Inflows

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Dec. 9 (Bloomberg) -- China’s seven-day money-market rate fell for a seventh day, the longest run of declines in five months, on speculation capital inflows will pick up as yuan appreciation accelerates.

The currency had its biggest two-day gain in seven months and touched a 20-year high of 6.0713 per dollar today. The People’s Bank of China raised the yuan’s reference rate by 0.17 percent to 6.1130, the strongest since a peg to the dollar ended in July 2005. Yuan positions at financial institutions accumulated from sales of foreign exchange, a measure of capital inflows, jumped 441.6 billion yuan ($72.7 billion) in October, the most in nine months.

“We had a strong appreciation of the currency and hence inflows into the country, which is helping to ease the liquidity,” said Rohit Arora, an emerging Asia interest-rate strategist at Barclays Plc in Singapore.

The seven-day repo rate, a gauge of funding availability in the banking system, slid six basis points, or 0.06 percentage point, to 4.49 percent in Shanghai, a weighted average compiled by the National Interbank Funding Center shows.

The one-year interest-rate swap, the fixed payment needed to receive the floating seven-day repo rate, was little changed at 4.78 percent in Shanghai, data compiled by Bloomberg show.

Rate Liberalization

The PBOC issued rules for trading certificates of deposit on the interbank market yesterday, a step toward loosening control over interest rates as the government pares its role in the world’s second-largest economy.

The rules set the CDs’ minimum size at 50 million yuan, with the Shanghai Interbank Offered Rate as a reference for pricing. The PBOC said issuers must meet other requirements, without elaborating.

The three-month Shanghai interbank offered rate increased nine basis points today to 5.26 percent, the highest level since July 1.

China’s consumer-price index rose 3 percent from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 3.1 percent median estimate of analysts surveyed by Bloomberg News and a 3.2 percent increase in October.

The central bank gauged demand for 91-day bills this week, a trader at a primary dealer required to bid at the auctions said today. The authority also asked banks to submit orders for 28-day repurchase contracts and seven-day and 14-day reverse repurchase agreements this morning, the trader said.

The yield on the 4.08 percent government bonds due August 2023 advanced three basis points today to 4.58 percent, according to the Interbank Funding Center.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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