China Money Rate Completes Longest Weekly Rally Since June 2013

China’s benchmark money-market rate rose for the fourth straight week, the longest run of gains since June 2013, as the central bank stepped up cash injections ahead of initial public offerings and the Lunar New Year holidays.

The People’s Bank of China pumped a net 90 billion yuan ($14 billion) into the financial system this week in open-market operations, after adding a total 105 billion yuan in the previous two weeks. It boosted the supply of funds also by lowering lenders’ reserve-requirement ratios effective Thursday. Twenty-four IPOs next week will lock up 2.05 trillion yuan in orders, according to the median of estimates from nine brokerages. The New Year holidays start Feb. 18.

The seven-day repurchase rate, a gauge of interbank funding availability, climbed 18 basis points this week to 4.35 percent as of 4:17 p.m. in Shanghai, a weighted average from the National Interbank Funding Center shows. It declined six basis points, or 0.06 percentage point, Friday after retreating 13 basis points Thursday.

“The reserve-ratio cut is expected to substantially alleviate funding difficulties ahead of the Lunar New Year,” said Liu Dongliang, a Shanghai-based analyst at China Merchants Bank Co. “The PBOC will continue to combine the use of long-and short-term tools as well as open-market operations flexibly to adjust liquidity.”

The central bank cut the RRR by at least 50 basis points, lowering the ratio for major lenders to 19.5 percent. The changes will free up as much as 600 billion yuan, according to Australia & New Zealand Banking Group Ltd.

No Stimulus

The reduction shouldn’t be seen as the beginning of strong stimulus, the official Xinhua News Agency reported Thursday, citing Lu Lei, head of the PBOC’s research bureau. Open-market operations are not enough to meet the liquidity shortfall around the New Year holidays, Lu was cited as saying.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, fell 15 basis points this week to 3.28 percent, data compiled by Bloomberg show. That was the biggest weekly drop since the period ended Nov. 28. It rose one basis point Friday.

The yield on government bonds due September 2024 declined nine basis points, or 0.09 percentage point, this week to 3.44 percent, according to National Interbank Funding Center prices. It was little changed today, after falling to the lowest level for a benchmark 10-year note since May 2013 on Thursday, ChinaBond data show.

— With assistance by Helen Sun

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