PBOC Offers Loans to Banks as Money Rate Jumps Most in 11 Months

China’s central bank offered short-term loans to commercial lenders as the benchmark money-market rate jumped the most in 11 months.

The amount of money made available by the People’s Bank of China wasn’t clear, according to people familiar with the matter. Policy makers are adding funds to the financial system to address a cash crunch as subscriptions for the biggest new share sales of the year lock up funds. Twelve initial public offerings from today through Dec. 25 will draw orders of as much as 3 trillion yuan ($483 billion), Shenyin & Wanguo Securities Co. estimated.

The seven-day repurchase rate, a gauge of interbank funding availability in the banking system, surged 139 basis points, or 1.39 percentage points, to a 10-month high of 5.28 percent as of 4:39 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The increase was the biggest since Jan. 20.

“The IPOs are affecting the market, leading to cautious sentiment with fewer institutions willing to lend,” said Li Haitao, a Shanghai-based analyst at China Guangfa Bank Co. “Quite a few traders found it very difficult to meet their funding needs yesterday.”

Lenders paid 4.65 percent for 60 billion yuan of three-month treasury deposits auctioned today by the PBOC, the most they’ve paid since January for such funds. The central bank also rolled over this week at least some of the 500 billion yuan of three-month loans granted to lenders in September, a government official said yesterday, declining to be identified as the details haven’t been made public.

Regulatory Checks

“Banks have to prepare for quarter-end regulatory checks, including loan-to-deposit requirements, and hoard cash to meet year-end demand,” said Wang Ming, chief operations officer at Shanghai Yaozhi Asset Management LLP, which oversees 2 billion yuan of fixed-income investments. “With all these factors affecting the market, it’s no surprise it’s suffering more than during previous IPOs.”

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose five basis points to 3.38 percent, data compiled by Bloomberg show.

The yield on China’s sovereign bonds due September 2024 fell two basis points to 3.78 percent, according to data from the National Interbank Funding Center. It’s increased 27 basis points this month.

The PBOC is expected to cut lenders’ reserve requirements before the Lunar New Year holiday in February to top up the money supply as the prospect of U.S. interest-rate increases draws cash from China, according to Ding Shuang, senior China Economist at Citigroup Inc. in Hong Kong.

“That is not a temporary situation,” he said. “China and the U.S. are in opposite policy cycles, so capital outflow is a long-term trend. ”

— With assistance by Helen Sun

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