China’s Overnight Money Rate Drops a Third Day on PBOC Signals

China’s overnight interbank lending rate dropped for a third day after the central bank said it will use a variety of tools to manage cash in the financial system, including adjusting lenders’ reserve requirements.

The People’s Bank of China will roll over maturing three-year bills to lock up longer-term liquidity, according to a quarterly report posted on its website Aug. 2. The PBOC gauged demand for sales of 91-day securities planned for this week, said a trader at a primary dealer required to bid at the auctions. It also asked banks to submit orders for 28-day repurchase agreements and both seven- and 14-day reverse repo contracts, the trader said.

“The central bank wants to lead money-market rates lower to reasonable levels and not to maintain tight liquidity, or raise money-market rates whatsoever,” Chen Jianheng and Liu Mingxi, analysts with China International Capital Corp., wrote in a research report today.

The overnight repurchase rate, which measures interbank funding availability, declined 10 basis points, or 0.10 percentage point, to 3.11 percent as of 5:03 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

The one-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, climbed two basis points to 3.92 percent in Shanghai, according to data compiled by Bloomberg. It fell 14 basis points last week.

PBOC, Data

The PBOC rolled over 73.5 billion yuan ($12 billion) of three-year bills at 3.5 percent on July 29 and 110.3 billion yuan at 3.37 percent on July 15, Guotai Junan Securities and China International Capital Corp. said in reports.

China’s non-manufacturing Purchasing Managers’ Index showed the first acceleration since March, government data released Aug. 3 showed. The PMI rose to 54.1 in July from 53.9 in June, according to the National Bureau of Statistics and China Federation of Logistics and Purchasing. Fifty is the dividing line between expansion and contraction.

The yield on the 3.38 percent government bond due May 2023 was unchanged at 3.73 percent, according to the Interbank Funding Center.

— With assistance by Helen Sun

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