China’s money-market rate declined by the most in three weeks as the central bank added cash to the financial system via open-market operations.
The People’s Bank of China sold 50 billion yuan ($8 billion) of seven-day reverse-repurchase agreements at 2.5 percent on Tuesday, according to a statement on its website. That exceeds the 35 billion yuan of similar contracts maturing. The PBOC will also auction 50 billion yuan of three-month treasury deposits on behalf of the Ministry of Finance on July 30. The injections came after the Shanghai Composite Index of stocks slumped the most since 2007 on Monday.
The benchmark seven-day repurchase rate, a gauge of interbank funding availability, fell eight basis points to 2.42 percent in Shanghai, according to a weighted average from the National Interbank Funding Center. That’s the biggest drop since July 6.
“The increase in reverse repos shows the PBOC is considering market sentiment, and has the intention to stabilize the money market at such a sensitive time,” said Huang Hai, Beijing-based deputy head of research at SDIC CGOG Futures Co., a unit of State Development & Investment Corp. “Actual interbank liquidity is good, and it won’t be a concern in the short term.”
The Shanghai Composite fell 1.7 percent on Tuesday, adding to Monday’s 8.5 percent loss.
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, dropped four basis points to 2.5 percent, according to data compiled by Bloomberg.
The PBOC reiterated it will adopt a prudent monetary policy in the second half, according to a statement on its website ahead of a meeting of branch chiefs scheduled for early August. The central bank will ensure ample liquidity, keep the yuan stable and stabilize market expectations, it said.
The yield on government bonds due May 2016 fell five basis points to 2.2 percent, after sliding 10 basis points on Monday, the most since May 27, according to prices from the National Interbank Funding Center. The yield on securities maturing in April 2025 was unchanged at 3.47 percent.
— With assistance by Helen Sun