China Money Rate Rises a Ninth Straight Day as PBOC Drains Funds

China’s benchmark money-market rate rose for a ninth day, the longest winning streak in a year, as the central bank drained cash from the financial system.

The People’s Bank of China auctioned 46 billion yuan ($7.4 billion) of 28-day repurchase agreements today at a yield of 4 percent, according to a statement on its website. That adds to a net 876 billion yuan that’s been withdrawn since the week-long Lunar New Year holiday ended in early February. China’s Leading Economic Index climbed 0.9 percent last month to 282.4, after increasing 0.3 percent in January, according to Conference Board data issued today.

“The repo amount is a bit higher than the market expected as no repo contracts are maturing this week,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. Still, a “liquidity squeeze will be less likely at the end of this quarter,” he said.

The seven-day repurchase rate, a gauge of funding availability in the interbank market, climbed six basis points to 3.64 percent as of 4:30 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It’s advanced 141 basis points since March 12 and reached 3.68 percent yesterday, the highest in three weeks.

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, rose four basis points, or 0.04 percentage point, to 4.25 percent, data compiled by Bloomberg showed.

A preliminary reading of China’s Purchasing Managers’ Index was 48.1 in March, less than the median forecast in a Bloomberg News survey and the 50 level that marks the dividing line between expansion and contraction, a report showed yesterday. China won’t use fiscal stimulus to encourage investment and instead will focus on the quality of growth, Finance Minister Lou Jiwei said at a forum in Beijing on March 22, according to Sina.com.

‘Relaxed Liquidity’

The seven-day repo rate is still below this quarter’s average of 4.03 percent and 4.74 percent in the three-month period through December.

“Recent China activity data suggest that China’s growth momentum continues to slow down, indicating that the central bank will likely maintain the current relaxed liquidity conditions in the foreseeable future,” ANZ’s Zhou said.

The National Development and Reform Commission’s approval for the building of five railway projects is the beginning of minor stimulus, with possibly more investment projects being announced in the coming weeks, according to a report today by Credit Suisse Group AG economists, led by Dong Tao in Hong Kong.

Government bonds fell, with the yield on the 4.08 percent notes due August 2023 rising one basis point to 4.51 percent, according to prices from the National Interbank Funding Center.

— With assistance by Helen Sun

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