China Overnight Money Rate Caps Weekly Gain on Reserves Change

Updated on
  • PBOC drains less money from financial system this week
  • Interbank liquidity improved from Thursday, says analyst

China’s overnight money-market rate increased this week as some banks were obliged to set aside more funds as reserves.

The rate climbed to the highest level in 10 months on Thursday as the People’s Bank of China normalized reserve requirements for some lenders that had been assigned preferential terms. The People’s Bank of China withdrew a net 80 billion yuan ($12 billion) from the financial system this week, compared with 455 billion yuan in the previous period, data compiled by Bloomberg show.

The one-day repurchase rate, a gauge of interbank funding availability, climbed 14 basis points this week to 2.03 percent as of 4:46 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. It fell eight basis points Friday after rising as much as 33 basis points to 2.30 percent on Thursday.

“Interbank liquidity conditions has improved today,” said Chen Long, an analyst at Bank of Dongguan Co. in Guangdong province. “Yesterday’s tightening was temporary, due to the change in required reserves” and the market expects liquidity to remain ample, he said.

The PBOC auctioned 300 billion yuan of seven-day reverse-repurchase agreements Friday, compared with 90 billion yuan of the contracts that matured and drained funds from the market. The interest rate was kept unchanged at 2.25 percent. The monetary authority sold 340 billion yuan of reverse repos on Thursday, matching the amount due.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was little changed from a week ago and fell two basis points Friday to 2.31 percent, data compiled by Bloomberg show.

— With assistance by Helen Sun

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