China Banks Pay Lower Rates on State Deposits as PBOC Adds Cash

Lenders in China paid the lowest interest rates in two months for government deposits after the central bank pumped in more money to help meet increased demand for cash before the Lunar New Year holiday.

The People’s Bank of China sold 40 billion yuan ($6.6 billion) of three-month deposits on behalf of the Ministry of Finance at 6.13 percent today, according to a statement on the website. That compared with 6.3 percent on Dec. 10 and 6 percent on Nov. 14. The PBOC added 120 billion yuan to markets via 21-day reverse-repurchase agreements today, it said on its website. That took this week’s net injection via open-market operations to 375 billion yuan, the most since February 2013.

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repurchase rate, rose six basis points, or 0.06 percentage point, to 4.9 percent as of 4:24 p.m. in Shanghai, according to data compiled by Bloomberg. The Lunar New Year holiday starts Jan. 31.

“Thanks to the PBOC’s injection, the market is now tightly balanced,” said Yan Yan, a Shanghai-based analyst at China Guangfa Bank Co. “There’s still strong demand for funds.”

The seven-day repo rate, a gauge of funding availability in the banking system, climbed five basis points to 5.3 percent, according to a daily fixing compiled by the National Interbank Funding Center.

The central bank issued the 21-day reverse repos at 4.7 percent, according to the statement on the website. The monetary authority auctioned 180 billion yuan of similar contracts and 75 billion yuan of seven-day reverse repos on Jan. 21, according to data compiled by Bloomberg. It also added funds this week using its Standing Lending Facility.

Manufacturing Index

A preliminary reading of manufacturing in China fell to 49.6 this month, compared with a final reading of 50.5 last month, and a 50.3 median estimate in a Bloomberg News survey, according to a private report today by from HSBC Holdings Plc and Markit Economics. A reading below 50 indicates contraction.

The yield on the 4.08 percent government bonds due August 2023 rose for the first time in four days, climbing five basis points to 4.55 percent, according to the Interbank Funding Center.

— With assistance by Helen Sun

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