China Money-Market Rate Declines on Signs of Increasing Inflows

China’s benchmark money-market rate fell for a third day after a report signaled a pickup in capital inflows and the central bank gauged demand for cash.

The rate declined after data showed the People’s Bank of China and domestic lenders were net buyers of a record 684 billion yuan ($110 billion) of foreign exchange in January, a sign of strengthening capital inflows. The PBOC gauged demand for a sale of 14-day reverse-repurchase contracts tomorrow, according to a trader at a primary dealer required to bid at the auctions. It also asked banks to submit orders for 28-day repurchase agreements, the trader said.

“We have seen a return of capital inflows into the market,” said Tommy Xie, a China economist at Oversea-Chinese Banking Corp. in Singapore. “The PBOC remains flexible in managing liquidity and definitely doesn’t have a tightening bias, at least for this quarter.”

The seven-day repurchase rate, which measures interbank funding availability, fell 20 basis points, or 0.2 percentage points, to 2.99 percent in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. It reached 2.98 percent earlier, the lowest level since Feb. 20.

The PBOC refrained from injecting or withdrawing cash from the banking system yesterday, after draining 915 billion yuan from the financial system in the previous two weeks as repurchase contracts were sold for the first time since June. The monetary authority will probably try to keep the seven-day repo rate around 3 percent to 3.5 percent, Lu Ting, chief Greater China economist at Bank of America Corp. in Hong Kong, wrote in a note received today via email.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, fell one basis point to 3.25 percent, according to data compiled by Bloomberg.

The yield on the 3.1 percent government bonds due January 2016 dropped one basis point to 3.095 percent, according to the Interbank Funding Center.

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