China’s benchmark money-market rate rose the most in more than a week on speculation the central bank is scaling back fund injections and as demand for cash increased before the end of the quarter.
The seven-day repurchase rate, a gauge of interbank funding availability, gained six basis points, or 0.06 percentage point, to 3.08 percent as of 4:18 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That was the biggest increase since June 6. The rate fell to 2.99 percent yesterday, the lowest since May 6.
The People’s Bank of China sold 30 billion yuan ($4.8 billion) of 28-day repurchase agreements that drain funds today at 4 percent, according to a statement on its website. That is offset by 65 billion yuan of maturing contracts this week, according to data compiled by Bloomberg, meaning net weekly additions are on track to be less than the 104 billion yuan in the five days ended June 13. China Merchants Bank Co., Bank of Ningbo Co., China Minsheng Banking Corp., and Industrial Bank Co. said yesterday the PBOC approved a reserve-ratio cut.
“The PBOC might have scaled back net injections in open-market operations, following the RRR cut,” said Hong Ben, an analyst at Ningbo city-based Yinzhou Bank in Zhejiang province. “This, combined with quarter-end cash demand, is lending support to money rates.”
The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repurchase rate, rose four basis points to 3.44 percent, data compiled by Bloomberg show. The rate fell to 3.375 percent earlier, the lowest since June 3.
Yuan positions at Chinese financial institutions accumulated from foreign-exchange purchases rose by 38.7 billion yuan in May, the smallest monthly gain since August, according to PBOC data released yesterday.
“Reduced forex purchases since January explain the PBOC cut in money-market interest rates in February and the selective RRR cuts,” Tim Condon, head of Asian research in Singapore at ING Groep NV, wrote in a research note today. “The forex purchases contrasts with the near-record $35.9 billion trade surplus and indicates hot-money outflows.”
ING lowered its year-end forecast for the seven-day repo rate to 3.25 percent from 4.24 percent, and cut its 10-year sovereign bond-yield estimate to 4.1 percent from 5 percent, Condon wrote in a separate note today.
The yield on the 4.42 percent government securities due March 2024 fell two basis points to 4.07 percent, National Interbank Funding Center prices show.