China Repo Falls Most in May on Speculation of PBOC Injection

China’s benchmark money-market rate fell the most this month on speculation the central bank will pump cash into the financial system to ease a shortage.

The People’s Bank of China gauged demand for sales of 91-day bills tomorrow and also asked banks to submit orders for 28-day repurchase contracts and 14-day reverse repos, said a trader at a primary dealer required to bid at the auctions. Companies have to make tax payments in the second quarter, which has caused tightness in the money market, according to Chen Qi, a strategist with UBS Securities Co. in Shanghai.

The seven-day repurchase rate, which measures interbank funding availability, fell 41 basis points to 4.03 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That was the biggest decline since April 28. The rate climbed 166 basis points in the four days through yesterday to the highest level since April 25.

“In case of further tightness, the central bank will inject liquidity into the market, which should stabilize money rates,” UBS’s Chen said. “The tax payment is a major reason for higher money rates and also there’s been slow growth in the money base” after the State Administration of Foreign Exchange said on May 5 it would introduce measures to increase monitoring of cross-border trade flows, she said.

The central bank has refrained from conducting reverse repos since it sold 410 billion yuan ($67 billion) of 14-day contracts on Feb. 7 to add funds and ease a cash squeeze before the Lunar New Year holidays.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repurchase rate, was little changed at 3.28 percent, according to data compiled by Bloomberg. The yield on the 3.15 percent government bonds due January 2018 was steady at 3.135 percent from yesterday, according to the National Interbank Funding Center.

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