China Money Rate Rises as Traders See No Cash Injection Tomorrow

China’s benchmark money-market rate climbed for a second day on speculation the central bank will refrain tomorrow from using reverse-repurchase agreements to add cash to the banking system.

The seven-day repurchase rate, a gauge of interbank funding availability, rose 31 basis points to 5.27 percent, the highest since Jan. 23, according to a daily fixing compiled by the National Interbank Funding Center. The People’s Bank of China injected 150 billion yuan ($24.8 billion) via 14-day reverse repos yesterday at a yield of 4.3 percent and tomorrow will be the last chance to add more funds before the week-long Lunar New Year holiday begins Jan. 31.

The monetary authority didn’t gauge demand today for tomorrow’s open-market operations, making it likely no contracts will be offered, according to primary dealers required to bid at the twice-weekly auctions. On Jan. 27, it asked lenders to submit orders for 14- and 21-day reverse repos, 28-day repos and 91-day bills at this week’s sales. The PBOC usually asks banks to submit orders for the week on Monday, and gauges demand again on Wednesday for Thursday.

“Yesterday’s 150 billion yuan injection was less than some dealers expected,” said Sun Binbin, an analyst at China Merchants Securities Co. in Shanghai. “Overall, the liquidity is still relatively tight.”

The PBOC added a net 375 billion yuan last week, the most since the run-up to the Lunar New Year holiday in February 2013. That included 75 billion yuan of seven-day contracts that matured yesterday. Demand for money typically climbs before the Lunar New Year break, a period in which cash gifts are made and families get together for celebratory feasts.

Swaps, Bonds

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, dropped six basis points to 4.82 percent as of 4:25 p.m. in Shanghai, according to data compiled by Bloomberg. They touched 4.77 percent on Jan. 27, the lowest level since Dec. 16.

Government bonds fell for a second day, with the yield on the August 2023 notes climbing two basis points, or 0.02 percentage point, to 4.54 percent, prices from the Interbank Funding Center show.

“Liquidity will remain relatively tight this year,” said Wang Dengfeng, a Beijing-based manager of China’s biggest money-market fund at Tianhong Asset Management Co. As China just started interest-rate liberalization, rates are expected to remain at elevated levels, he said in an interview.

— With assistance by Helen Sun

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