China Money Rate Declines for a Fifth Day on PBOC Easing Signs

China’s benchmark money-market rate fell for a fifth day, the longest run of declines in two months, on signs the central bank is adding funds selectively to ease a cash squeeze.

In the past two days, about 30 transactions for overnight loans in the interbank market were recorded in the final 90 minutes of trading in Shanghai at rates of between 3.5 percent and 4 percent, according to data compiled by Bloomberg. Those were the lowest levels of each day and compared with the average rate of 5.46 percent. The People’s Bank of China signaled this week that while it won’t let the cash crunch roil money markets, any liquidity support will be focused on banks that are lending to help the economy.

“The PBOC will remain the lender of last resort, preventing a systemic threat, and will try to improve the liquidity situation, but only gradually, leaving markets unstable,” Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong, wrote in a research note today.

The seven-day repurchase rate fell 55 basis points, or 0.55 percentage point, to 6.74 percent, according to a weighted average compiled by the National Interbank Funding Center. It reached a record 12.45 percent on June 20 and rose 193 basis points this month. The overnight repo rate declined 10 basis points to 5.44 percent today.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, rose four basis points to 3.95 percent in Shanghai, after falling as much as 11 basis points earlier, data compiled by Bloomberg show. It reached an all-time high of 5.06 percent on June 20 and rose 64 basis points this month, the most since January 2011.

PBOC Operations

The People’s Bank of China won’t conduct repurchase or reverse-repurchase agreements today, according to two traders at primary dealers required to bid at the auctions. The central bank also won’t sell bills today, the traders said. Maturing notes added a net 25 billion yuan ($4.1 billion) to the financial system this week, the least in a month, data compiled by Bloomberg show.

Liquidity conditions in China eased in the past two days and have “normalized,” Zhang Jianguo, president of China Construction Bank Corp., said at a press conference in Taipei today. The bank lent money to other lenders amid the cash squeeze, he said, adding that the PBOC has been proactive in maintaining banking-system stability.

China should more effectively regulate banks so as not to increase their leverage, according to a front-page commentary in China Securities Journal today. The central bank said in a statement on June 25 that it has provided financing to some financial institutions to stabilize interbank lending rates and will use short-term liquidity operations and existing loan-facility tools to ensure steady markets. It also called on commercial banks to improve their cash management.


“The PBOC will be standing by to prevent any real liquidity crisis and fend off any Lehman-style disaster,” Ken Peng, an economist at BNP Paribas SA in Beijing, wrote in a note today. “The overnight about-turn in attitude appears to have come on the heels of intervention by higher authorities and other government bodies,” he wrote, adding that China Development Bank Corp. and the Finance Ministry were “clearly upset” about canceled or failed auctions.

Companies including Shanghai ShenTong Metro Co., China Three Gorges Corp. and Doosan Infracore China Co. joined state-owned policy lender China Development Bank Corp. in postponing at least 32.1 billion yuan of sales this week, according to statements posted on, the government bond clearing house website.

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