China Money Rate Drops Most in Three Weeks After PBOC Adds Funds

China’s benchmark money-market rate dropped the most in three weeks after the central bank added funds to the financial system last week.

The People’s Bank of China provided 500 billion yuan ($81 billion) to the nation’s five biggest commercial banks via its standing lending facility, the official Xinhua News Agency reported on Sept. 19, citing China Construction Bank Corp. Chairman Wang Hongzhang. The lender was “in talks” with the PBOC, Wang was cited as saying, when asked whether the bank had already received 100 billion yuan. The PBOC also added 8 billion yuan last week in its open-market operations and cut the interest rate it pays on 14-day repurchase agreements.

“The repo market finally started to feel the impact of SLF operations,” Huang Yanhong, a fixed-income analyst at Bank of Nanjing Co. in the provincial capital of Jiangsu. “The money should have been put in place gradually. Now we don’t expect the liquidity to tighten much at the end of the quarter as usual, given the large amount of injection.”

The seven-day repurchase rate, a gauge of funding availability in the financial system, dropped 11 basis points, the most since Sept. 1, to 3.23 percent as of 4:44 p.m. in Shanghai, after rising seven basis points last week, according to a weighted average compiled by the National Interbank Funding Center. It touched 3.15 percent today, the lowest since Sept. 10.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, fell four basis points, or 0.04 percentage point, to 3.36 percent, according to data compiled by Bloomberg. The rate declined 22 basis points last week, the biggest five-day drop since July.

Bonds Steady

The yield on the 4 percent government notes due June 2024 declined two basis points to 4.03 percent, according to data from the National Interbank Funding Center and ChinaBond. It fell 25 basis points last week, the most since November.

Premier Li Keqiang said lowering interest rates would be difficult as the government works to cut companies’ financing costs, China Business News reported on its website on Sept. 22, citing Pan Yuehan, head of Bank of China’s Shanghai branch. The best way to bring down borrowing costs is through reforms that make it easier for money to flow into China, Li told officials including central bank Governor Zhou Xiaochuan during a visit to the Shanghai Free Trade Zone last week, according to the report.

— With assistance by Helen Sun

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