China Overnight Rate Completes Weekly Gain as PBOC Drains Funds

China’s overnight money-market rate had its first weekly gain in three on speculation the central bank’s record withdrawal of funds will increase borrowing costs.

The People’s Bank of China drained a net 910 billion yuan ($146 billion) of capital from the financial system this week, the most since Bloomberg started compiling the data in 2008. The monetary authority sold repurchase contracts for the first time since June on Feb. 19, withdrawing funds from banks after they lent the most money in two years in January.

“Banks have turned cautious about lending to each other since PBOC resumed repo sales,” said Song Qiuhong, a bond analyst at Foshan Shunde Rural Commercial Bank Co. in Foshan, a city in the southern province of Guangdong. “Money rates may rise more next week when banks start hoarding cash to meet month-end capital requirements.”

The one-day repurchase rate, which measures interbank funding availability, climbed 34 basis points this week to 2.21 percent as of 4:31 p.m. in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. The rate jumped 18 basis points today, the biggest increase since Feb. 6.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose eight basis points this week to 3.21 percent, the highest since Jan. 23, according to data compiled by Bloomberg. The rate gained five basis points today.

The yield on the 2.81 percent government bonds due January 2014 fell one basis point this week to 2.69 percent, according to the Interbank Funding Center. The yield was steady today.

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