China’s benchmark money-market rate posted its biggest weekly drop since 2011 as central bank cash injections and fiscal fund transfers boosted supply. The yuan rose to the strongest level in 20 years.
The seven-day repurchase rate tumbled 252 basis points since Dec. 20, the biggest decline since July 2011, to 5.08 percent in Shanghai, a daily fixing from the National Interbank Funding Center showed. The gauge of funding availability in the banking system fell 25 basis points, or 0.25 percentage point, today.
The People’s Bank of China added a net 29 billion yuan ($4.8 billion) this week by auctioning seven-day reverse repurchase contracts on Dec. 24, according to data compiled by Bloomberg. There were no injections last week, prompting the biggest surge in the rate since January 2011. The central government’s transfer of fiscal funds to local administrations boosted cash at commercial banks, according to Founder Securities Co.
“The reverse-repo injection greatly eased market concern,” said Gao Hui, Beijing-based analyst at Founder. “While the amount wasn’t big, the market was further aided by fiscal deposit transfers.”
The one-year interest-rate swap, the fixed payment needed to receive the floating seven-day repo rate, dropped four basis points this week to 5.01 percent. It increased one basis point today.
The yuan strengthened beyond 6.0700 to the dollar for the first time, touching 6.0670 before trading 0.1 percent higher at 6.0686, China Foreign Exchange Trade System prices show. That’s a 0.04 percent gain since Dec. 20. The PBOC raised the yuan’s reference rate by 0.17 percent to 6.1050 per dollar today, the strongest since a peg to the greenback ended in July 2005.
“The investor perception of the Chinese currency is that it’s stable with limited downside risks, and it gives a much higher yield compared to the U.S. dollar,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd.
In Hong Kong’s offshore market, the yuan rose 0.04 percent to 6.0729 per dollar, data compiled by Bloomberg show. Twelve-month non-deliverable forwards gained 0.17 percent to 6.1315, a 1 percent discount to the spot rate in Shanghai.
The yield on the 4.08 percent government bonds due August 2023 was little changed this week and today at 4.63 percent, according to the Interbank Funding Center. This compares with 2.99 percent for U.S. Treasuries of similar maturity.
International Finance Corp. signed an agreement with the PBOC yesterday to invest in China’s interbank bond market through the central bank, according to a statement posted on the PBOC website.