China Money Rate Rises as Banks Hoard Cash for New Year Holidays

China’s money-market rate rose for a second day on speculation cash supply will wane as banks hoard funds to prepare for the Lunar New Year holidays.

The People’s Bank of China gauged demand for seven and 14-day reverse-repurchase agreements, or contracts that are used to add funds to the financial system, according to a trader required to bid at the sales. The central bank said on Jan. 18 it will start short-term money operations to help regulate cash supply to supplement regular open-market auctions each Tuesday and Thursday. It named 12 lenders to participate.

“Banks wouldn’t lend to each other because they are afraid of volatilities in liquidity,” said Song Qiuhong, a bond analyst at Foshan Shunde Rural Commercial Bank Co. in Foshan, a city in the southern province of Guangdong.

The seven-day repurchase rate, which measures interbank funding availability, gained 16 basis points to 3 percent as of 10:25 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. China’s financial markets will be shut from Feb. 11 to Feb. 15 for the holidays.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, rose one basis point, or 0.01 percentage point, to 3.18 percent, data compiled by Bloomberg show.

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