China Money Rate Declines Before Reverse Repos Mature This Week

China’s benchmark money-market rate declined on speculation cash is starting to return to the banking system after the week-long Lunar New Year holiday.

The People’s Bank of China didn’t conduct reverse-repurchase operations today, according to a trader at a primary dealer required to bid at the auctions, as 450 billion yuan ($74 billion) of those contracts mature this week. Reasonable volatility in money-market rates must be tolerated as the central bank manages liquidity to curb credit growth, it said in its fourth-quarter monetary-policy report issued at the weekend.

The seven-day repurchase rate, a gauge of funding availability in the interbank market, fell 10 basis points to 5.2 percent as of 4:45 p.m. in Shanghai, a weighted average compiled by the National Interbank Funding Center showed. It averaged 4.85 percent this year and reached a 2014 high of 6.59 percent on Jan. 20 before markets closed for the new year holidays on Jan. 31.

“Skipping today’s operation indicated the central bank is sticking to its relatively tight stance,” said Song Qiuhong, a bond analyst at Shunde Rural Commercial Bank Co. in Foshan in the southern Guangdong province. Some dealers had expected a small amount of reverse repos to prevent any potential tightness, he said.

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, fell two basis points to 4.85 percent, according to data compiled by Bloomberg. The yield on the 4.08 percent government bonds due August 2023 dropped one basis point, or 0.01 percentage point, to 4.5 percent, prices from the National Interbank Funding Center show.

The central bank said in its report that international experiences showed market rates usually climb in the initial stages of interest-rate liberalization, signaling money rates are likely to stay volatile.

— With assistance by Helen Sun

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