China’s Rate Jumps Most in Two Months as Injections End

China’s money-market rate jumped the most in two months as the central bank refrained from injecting cash in open-market operations for the third auction in a row amid signs of a pickup in Asia’s biggest economy.

The People’s Bank of China has suspended selling reverse-repurchase contracts since Oct. 17, after offering seven- or 14-day agreements at twice-weekly auctions for more than three months. The PBOC drained a net 58 billion yuan ($9.5 billion) this week, the most since February, data compiled by Bloomberg show. That compared with a withdrawal of 44.5 billion yuan in the week ended Oct. 18.

“The goal for the central bank is to maintain relatively steady monetary conditions, neither too loose nor too tight,” said Becky Liu, a senior rate strategist at Standard Chartered Plc in Hong Kong. “The spike was purely a reversal of the earlier overly accommodative condition. A 4 percent money-market rate is still the desirable level.”

The seven-day repurchase rate rose 65 basis points, the biggest increase since July 29, to 4.67 percent, according to a daily fixing by the National Interbank Funding Center. The overnight repo rate increased 27 basis points, or 0.27 percentage point, to 4.07 percent, after surging 70 basis points yesterday. The yield on government bonds due August 2023 increased six basis points to 4.21 percent, the highest for a benchmark 10-year note since September 2008.

Quarterly corporate tax payments contributed to the increases in borrowing costs, Pin Ru Tan, an interest-rate strategist at HSBC Securities Asia Ltd. in Hong Kong, said yesterday.

‘Tightly Balanced’

The one-year interest-rate swap, the fixed payment needed to receive the floating seven-day repo, rose seven basis points to 4.12 percent as of 16:36 p.m. in Shanghai, the biggest increase in two months, according to data compiled by Bloomberg. It touched 4.14 percent, the highest since Sept. 12.

“It’s pretty clear that the PBOC’s baseline is a tightly balanced liquidity level, but to achieve the goal, it can be flexible,” said Chen Long, an analyst at Bank of Dongguan. “I don’t think repo sales are necessary for now, especially since it’s almost the end of the month.”

The pressure for monetary and credit expansion is still large as the trade surplus widens and capital flows in, the central bank said in an Oct. 16 statement. There is ample liquidity in the banking system and the central bank will follow a “prudent” monetary policy, according to the statement.

A gauge of China’s manufacturing rose more than economists forecast in October, with a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics showing a preliminary reading of 50.9. Fifty is the dividing line between contraction and expansion.

— With assistance by Helen Sun

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