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China Money Rate Completes Biggest Weekly Decline Since May

China’s benchmark money-market rate dropped this week by the most in almost two months as demand for cash declined following the quarter-end.

The People’s Bank of China injected a net 55 billion yuan ($8.9 billion) into the banking system via open-market operations in the five days through yesterday, the eighth consecutive week of additions, data compiled by Bloomberg show. Lenders’ demand for funds increases at the end of each quarter before they report financial positions to the regulator, and they are required to set aside more money as reserves at the start of the next month.

The seven-day repurchase rate, a gauge of interbank funding availability, fell 43 basis points this week to 3.42 percent in Shanghai, according to a weighted average from the National Interbank Funding Center. That was the biggest drop since early May. The rate was steady today.

“The interbank market has passed the mid-year test,” said Lin Yijian, a Guangzhou-based fixed-income analyst at Guangzhou Rural Commercial Bank Co. “Liquidity is back to normal, which is actually slightly loose.”

China’s official Purchasing Managers’ Index for manufacturing rose to 51 last month, the highest level in 2014, while the non-manufacturing PMI was 55, data from the statistics bureau showed this week.

Swaps, Bonds

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, climbed for a second week, rising 20 basis points to 3.74 percent, according to data compiled by Bloomberg. It was little changed today.

The yield on the government’s 4 percent bonds due June 2024 advanced 17 basis points, or 0.17 percentage point, this week to 4.25 percent, according to data from the National Interbank Funding Center. The rate rose five basis points today.

The Ministry of Finance will require local governments to publicize their detailed budget plans and expand a municipal bond issuance trial to establish a “modern fiscal system” by 2020, according to an interview with Finance Minister Lou Jiwei published by the official Xinhua News Agency yesterday.

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