China’s benchmark market-money rate rose to the highest level in almost a week on speculation corporate tax payments tied up funds, prompting the central bank to add cash to the financial system.
Commercial lenders need to park companies’ tax funds at the monetary authority in the month after the quarter-end and this often drives rates higher. The People’s Bank of China sold 35 billion yuan ($5.6 billion) of seven-day reverse-repurchase agreements at 2.5 percent Tuesday, according to its website, compared with 20 billion yuan of similar contracts maturing today. Fifty billion yuan of treasury deposits that are due later this week will also drain liquidity.
The seven-day repurchase rate, a gauge of interbank funding availability, increased for a second day, rising three basis points to 2.44 percent as of 4:30 p.m. in Shanghai, a weighted average from the National Interbank Funding Center shows. That’s the highest since July 15.
“Big banks don’t seem to be willing to lend now, which could be due to the tax payments,” said Hong Ben, an analyst at Ningbo city-based Yinzhou Bank in Zhejiang province. “That explains why the PBOC boosted fund injections via open-market operations today.”
The central bank will use various policy tools to maintain liquidity at a moderate level, Sheng Songcheng, head of PBOC’s statistics department, wrote in an article published in the bank’s newspaper Financial News Tuesday.
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, advanced seven basis points to 2.53 percent, according to data compiled by Bloomberg. It touched a one-week low of 2.45 percent Monday.
Sovereign bonds dropped, with the yield on the notes due April 2025 climbing two basis points to 3.53 percent, according to prices from the National Interbank Funding Center.
— With assistance by Helen Sun