China Money Rate Drops Most in Month as PBOC Adds Cash

China’s overnight money-market rate dropped by the most in a month as the central bank stepped up cash injections into the banking system to meet quarter-end and pre-holiday demand for funds.

The People’s Bank of China added 88 billion yuan ($14.4 billion) using six-day reverse-repurchase contracts priced to yield 3.9 percent, according to a statement on its website. That was the highest amount since 410 billion yuan of 14-day agreements were auctioned on Feb. 7, before the weeklong Lunar New Year break, and compares with 8 billion yuan of seven-day contracts a week ago. Six-day reverse repos were used today as financial markets in China will be shut Oct. 1-7 for the National Day holiday.

The overnight repurchase rate, a gauge of funding availability in the banking system, declined 23 basis points, or 0.23 percentage point, to 3.64 percent as of 4:12 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That was the biggest drop since Aug. 21. The seven-day repo rate rose 12 basis points to 4.52 percent following a 39 basis point jump yesterday that was the biggest since July.

“The biggest reverse-repo sales in more than half a year means the PBOC wants the money-market rates to stabilize before the holidays,” said Liu Wenbo, a Shanghai-based analyst at Shanghai Cifco Futures Co. “However, we should also note that the maturity of six days means it only aims to ensure quarter-end cash supply, not a signal of loosening.”

Bill Sales

China’s central bank will sell bills in the coming quarter for the first time since June to contain inflation as cash pours in from abroad, HSBC Holdings Plc and Guotai Junan Securities Co. forecast. The People’s Bank of China halted issuance three months ago to avoid exacerbating a cash crunch as it clamped down on speculative financing. The overnight repo rate climbed to a record 13.91 percent on June 20.

The cost of one-year interest rate swaps, the fixed payment to receive the floating seven-day repo rate, declined for the first time in five days, slipping three basis points to 4.05 percent.

“It’s very possible that the PBOC will return to a tightening stance in open-market operations, starting with repo and bill sales in the fourth quarter,” Pin Ru Tan, an interest-rate strategist at HSBC Securities Asia Ltd. in Hong Kong, said in a Sept. 18 interview. “However, it’s hard to determine the timing as it will be dependent on how the liquidity situation pans out following the holidays and quarter-end accounting.”

The yield on the government’s 4.08 percent bonds due August 2023 advanced one basis point to 4.06 percent, according to prices from the Interbank Funding Center.

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