China's Money Rate Drops First Time in Three Days on Injections

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China’s benchmark money-market rate fell for the first time in three days on speculation the central bank will keep pumping cash into the financial system to replace funds being pulled out by intervention in the currency market.

The People’s Bank of China has stepped up sales of reverse-repurchase agreements, and conducted Short-term Liquidity Operations to boost cash supply in the past two weeks. The monetary authority has been buying yuan to support the exchange rate since a surprise devaluation on Aug. 11. The official manufacturing Purchasing Managers’ Index for August dropped to a three-year low, according to figures released Tuesday.

The seven-day repo rate, a gauge of interbank funding availability, fell four basis points to 2.38 percent as of 4:32 p.m. in Shanghai, according to National Interbank Funding Center prices. Chinese financial markets will be closed on Thursday and Friday for public holidays.

“The weak economy needs ample money supply, and the currency-market intervention also needs injections to offset liquidity tightening,” said Zhang Guoyu, a Shanghai-based analyst at Tebon Securities Co. “The PBOC will probably continue short-term liquidity injections after the holiday.”

The PBOC sold 150 billion yuan ($23.6 billion) of seven-day reverse repos at 2.35 percent on Tuesday, according to a statement on its website. That matched the amount of similar contracts that are maturing, leading to a neutral position in open-market operations.

Swaps, Bonds

The central bank pumped 140 billion yuan of funds into the financial system on Monday via six-day Short-term Liquidity Operations. That was the same as the amount of similar contracts sold on Aug. 26 and due Tuesday. The PBOC also injected 60 billion yuan via seven-day SLO on Aug. 28.

The monetary authority also boosted longer-term liquidity last month. Outstanding loans under the Medium-term Lending Facility stood at 490 billion yuan at the end of August, up from 380 billion yuan at the end of July, according to central bank data released Tuesday. Credit under the Pledged Supplementary Lending arrangement rose to 906.8 billion yuan from 846.4 billion yuan.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose one basis point to 2.43 percent. The yield on the sovereign notes due July 2025 declined one basis point to 3.32 percent, according to data from the National Interbank Funding Center.

— With assistance by Helen Sun

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