China Money Rate Falls as PBOC Lowers Reverse-Repo Yield

China’s benchmark money-market rate dropped to a two-week low after policy makers lowered the cost of funds for banks at an auction of reverse-repurchase agreements today.

The People’s Bank of China conducted 12 billion yuan ($2 billion) of seven-day reverse repos at a yield of 4 percent, according to a statement on its website. That compares with 4.4 percent on July 30, when the contracts were used in open-market operations for the first time since January. The central bank issued 14-day agreements on Aug. 1 at a yield of 4.5 percent.

“By lowering its reverse-repo rate today, the central bank is aiming to guide interbank repo rates lower,” said Pin Ru Tan, an interest-rate strategist at HSBC Securities Asia Ltd. in Hong Kong. “The dovish policy tilt is obvious, so money-market rates should still have room to decline.”

The seven-day repurchase rate, a gauge of cash availability in the banking system, fell 21 basis points, or 0.21 percentage point, to 4.14 percent as of 4:30 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It touched 4 percent, the lowest since July 23. The overnight repo rate was little changed at 3.12 percent.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repo rate, dropped four basis points to 3.87 percent, according to data compiled by Bloomberg.

The People’s Bank of China will appropriately fine-tune policies and strike a balance between stable economic growth, structural adjustment, reform and risk prevention, according to a statement published Aug. 4 after a meeting of heads of central bank branches.

Gross domestic product increased 7.5 percent from a year earlier in the three months through June, the least since a 7.4 percent gain in the third quarter of 2012 that marked the slowest expansion in more than three years.

The yield on the government’s 3.38 percent bonds due May 2023 was little changed at 3.73 percent, according to the Interbank Funding Center. The yield on benchmark 10-year notes has averaged 3.55 percent this year, ChinaBond data show.

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