China Money Rate Drops a Seventh Week as PBOC Cuts Auction Yield

Updated on

China’s benchmark money-market rate dropped for a seventh week, the longest run of declines in six years, after the central bank cut the interest rate it charges on a short-term lending tool.

The People’s Bank of China lowered the rate on seven-day reverse-repurchase agreements by 10 basis points to 3.35 percent on Tuesday, the fifth reduction since the start of March. The seven-day repurchase rate for loans between banks declined four basis points this week to 2.86 percent as of 5:30 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The overnight repo rate slid to an 11-month low of 2.23 percent.

Policy makers are pushing down borrowing costs to revive an economy expanding at the slowest pace since 2009. Gross domestic product grew 7 percent from a year earlier in the first quarter and industrial output rose 5.6 percent in March, weaker than all the 40 estimates in a Bloomberg survey, data from the statistics bureau showed Wednesday.

“There’s room for the PBOC to lower the yield in reverse-repo operations further,” said Xu Chenxi, an analyst at Nanhua Futures Co. in Hangzhou, Zhejiang province. “Until there are solid signs of the economy gaining momentum, keeping borrowing costs relatively low will remain on the central bank’s agenda.”

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, declined 11 basis points this week to 2.98 percent, according to data compiled by Bloomberg. The yield on sovereign debt due December 2024 fell 11 basis points, or 0.11 percentage point, from April 10 to 3.59 percent, National Interbank Funding Center prices show.

The monetary authority’s open-market operations drained a net 15 billion yuan ($2.4 billion) from the financial system this week as more reverse repos matured than were issued.

Market Opening

Futures brokerages can access the interbank bond market for their proprietary trading and wealth management products after completing registration procedures with the central bank, according to a statement posted on the website of the China Futures Association Thursday.

The interest rate for overnight loans on the Shanghai Stock Exchange declined 244 basis points Friday to 0.67 percent as funds locked up for initial public offerings start to be released. Investors were estimated to have placed 2.73 trillion yuan of orders for share sales by 30 Chinese companies this week, a Bloomberg survey of six brokerages showed.

— With assistance by Helen Sun

Before it's here, it's on the Bloomberg Terminal. LEARN MORE