China Overnight Rate Completes Biggest Weekly Increase in a Year

China’s overnight money-market rate completed its biggest weekly jump in a year on speculation the central bank will take steps to restrain property prices and inflation.

Monetary policy may be tightened because of excessive market liquidity and rising real-estate prices, according to a front-page commentary in China Securities Journal this week. The People’s Bank of China refrained from offering reverse-repurchase agreements yesterday after gauging demand on Feb. 27 for auctions of seven- and 14-day contracts that inject cash into the financial system.

“While there have been no reverse repos done this week, liquidity should not have been that tight,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB. “The upward move in front-end rates may be overdone.”

The one-day repurchase rate, which measures interbank funding availability, climbed 190 basis points this week to 4.10 percent in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. That is the biggest weekly increase since February 2012. The rate rose five basis points, or 0.05 percentage point, today, increasing for a ninth straight day.

The monetary authority drained a net 5 billion yuan ($804 million) of capital from the financial system this week after withdrawing 910 billion yuan last week, the most since Bloomberg started compiling the data in 2008. The PBOC sold repurchase contracts for the first time since June on Feb. 19, taking out funds from banks after they lent the most money in two years in January.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose eight basis points this week to 3.28 percent, according to data compiled by Bloomberg. The rate rose two basis points today.

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