China’s Money Rate Drops as PBOC Targets Lower Borrowing Costs

China’s money-market rates declined as reports suggested the central bank stepped up efforts to bring borrowing costs down.

The People’s Bank of China’s branches lowered the interest rates they charge commercial banks for some short-term loans, Caixin reported Wednesday, citing unidentified people at the monetary authority. The PBOC cut the rate it pays on seven-day reverse-repurchase agreements to 3.75 percent from 3.85 percent at a Tuesday auction, having at the weekend reduced its benchmark interest rates for the second time in three months.

The seven-day repurchase rate, a gauge of funding availability in the banking system, dropped four basis points to 4.69 percent as of 4:30 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That compares with this year’s average of 4.27 percent.

“The return of funds to the banking system after the Chinese New Year holidays is not obvious this year, so this is prompting the central bank to continue the job of guiding interest rates lower,” said Xu Chenxi, an analyst at Nanhua Futures Co. in Hangzhou, Zhejiang province. “The expectation of loosening is still there.”

The guidance for the overnight repurchase agreements was lowered to 4.5 percent from 5 percent, and that for the seven-day repos was cut to 5.5 percent from 7 percent, according to Caixin. PBOC branches nationwide will provide loans to smaller financial institutions if needed via the standard lending facility, expanding a trial in 10 provinces and cities that started last year, according to a statement in February. Two calls to the central bank regarding the report went unanswered Wednesday.

Use of the facility to add cash wouldn’t be unexpected as policy makers need to address a shortfall in the base money supply this year, analysts led by Beijing-based Qu Qing at Huachuang Securities Co. wrote in a note Wednesday.

PBOC Injections

The PBOC used a variety of tools last year, including the standing lending facility, a medium-term lending facility, and short-term liquidity operations, to boost the money supply as it stepped back from regular intervention in the foreign-exchange market. It previously added yuan to the financial system via dollar purchases that helped limit the Chinese currency’s appreciation.

The Finance Ministry sold 10-year securities at 3.3897 percent Wednesday, compared with the median estimate of 3.38 percent in a Bloomberg News survey.

The yield on China’s bonds due September 2024 gained two basis points to 3.45 percent, according to National Interbank Funding Center prices. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose two basis points to 3.45 percent, data compiled by Bloomberg show. It touched a three-month high of 3.50 percent Tuesday.

More Cuts

The PBOC cut its one-year deposit and lending rates by 25 basis points to 2.5 percent and 5.35 percent, respectively, effective March 1. The monetary authority will cut benchmark deposit and lending rates again next quarter, according to the median forecast of economists surveyed this week by Bloomberg.

China’s securities regulator approved 24 companies’ initial public offering plans on March 2. About 1.9 trillion yuan ($303 billion) of funds will be locked up, based on timetables released by 19 firms, analysts led by Shanghai-based Xu Hanfei at Guotai Junan Securities Co. wrote in a note today.

— With assistance by Helen Sun

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