China Money Rate Falls to Lowest Since May as Cash Squeeze Eases

China’s benchmark money-market rate declined to the lowest level since May as the central bank refrained from adding funds to the financial system, adding to signs last month’s cash squeeze has eased.

The People’s Bank of China didn’t conduct repurchase-agreement operations today, according to a trader at a primary dealer required to bid at the auctions. The PBOC is due to publish credit data for June by July 15, which may indicate how much the cash shortage, which sent interbank borrowing costs soaring to records last month, is affecting the world’s second-largest economy.

“I think the PBOC suspended open-market operations today,” said Chen Qi, a rates strategist at UBS Securities Co. in Shanghai. “So there’s no drain or injection” of funds, Chen said. “It continues with a neutral stance.”

The seven-day repurchase rate, which measures interbank funding availability, fell six basis points to 3.61 percent as of 4:09 p.m. in Shanghai after sliding 236 basis points, or 2.36 percentage points, last week, according to a weighted average compiled by the National Interbank Funding Center. The rate touched 3.40 percent, the lowest since May 29. It reached a record high of 12.45 percent on June 20.

The one-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, climbed one basis point to 3.81 percent, according to data compiled by Bloomberg. The rate has fallen 125 basis points from this year’s high of 5.06 percent on June 20.

Rising Supply

Money-market tightness in China has eased with the Ministry of Finance auctioning 50 billion yuan ($8.2 billion) each of three- and six-month Treasury deposits on July 11 and 18, Yii Hui Wong and Mirza Baig, Singapore-based strategists at BNP Paribas SA, wrote in a report today.

There will be 267 billion yuan of bills maturing in July and the central bank will likely allow this liquidity to seep back into the system, according to the report.

The PBOC signaled June 25 that any liquidity support during the funding crunch would be focused on banks that lend to help the economy.

“We believe that domestic funding conditions will be tighter in the second half of 2013, reflecting more prudent policies toward liquidity growth,” Goldman Sachs Group Inc.’s Hong Kong-based economist Cui Li wrote in a report today. The seven-day repo rate may rise to around an average 4 percent in the fourth quarter, according to the report.

China’s consumer-price index rose 2.7 percent in June from a year earlier, official data showed today, compared with a median estimate of 2.5 percent in a Bloomberg News survey. Producer prices fell 2.7 percent.

Before it's here, it's on the Bloomberg Terminal.