China Swap Rate at Four-Month High as PBOC Halts Cash Injection

China’s interest-rate swaps climbed to the highest level since June as the central bank refrained from adding funds to the financial system.

The People’s Bank of China didn’t sell reverse-repurchase contracts today, according to three traders with primary dealers required to bid at the auctions. The monetary authority injected funds via reverse-repo agreements on Oct. 29, Oct. 31 and Nov. 5. It had suspended the operations in the two weeks through Oct. 25, helping drive the overnight and seven-day repurchase rates to four-month highs as banks struggled to meet month-end cash needs and deposit taxes with the PBOC.

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo, rose nine basis points to 4.36 percent as of 5:02 p.m. in Shanghai, the highest since June 24, according to data compiled by Bloomberg. It increased for a fourth day.

“The PBOC’s stance is clear - it won’t let you indulge in cheap money anymore,” said Chen Qingsheng, an analyst at Evergrowing Bank Co. in Shanghai. “Cash supply is not tight now, and obviously the central bank believes the rates have fallen enough already, perhaps too much.”

The seven-day repo rate added two basis points, or 0.02 percentage point, to 3.90 percent, according to a weighted average compiled by the National Interbank Funding Center. The rate fell for five days in a row, the longest declining streak since July, to 3.88 percent yesterday. The overnight repo rate climbed seven basis points to 3.74 percent today.

The PBOC said it will maintain prudent monetary policy and continue stabilizing inflation expectations as the foundation for stable consumer prices isn’t very solid, according to a report posted on the central bank’s website on Nov. 5.

The yield on the 4.08 percent government bonds due August 2023 rose seven basis points to 4.32 percent, according to data from the Interbank Funding Center. That was the highest for a benchmark 10-year sovereign debt since 2008.

— With assistance by Helen Sun

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