China Money Rate Drops as PBOC Cuts Yield Paid on Reverse Repos

China’s benchmark money-market rate fell to the lowest since January as the central bank cut the yield on a short-term lending tool for the third time this month.

The seven-day repurchase rate, a gauge of interbank funding availability, dropped as much as 11 basis points to 3.92 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The People’s Bank of China conducted 20 billion yuan ($3.2 billion) of seven-day reverse-repurchase agreements at 3.55 percent, 10 basis points lower than at last week’s two auctions.

The central bank is helping guide borrowing costs lower to combat a slowdown in the world’s second-largest economy. A manufacturing gauge slipped to an 11-month low in March, a preliminary report showed Tuesday, while industrial output, investment and retail sales growth missed analysts’ estimates in January and February.

“Interbank liquidity has become looser and money rates declined in the last one or two weeks, so the reverse-repo yield cut is following the market,” said Zhang Hui, a fixed-income trader at Changjiang Securities Co. in Wuhan city, Hubei province. “The macro environment doesn’t support the case for liquidity to be too tight. There may be further loosening measures in the coming month.”

The central bank reduced its benchmark lending and deposit rates at the start of this month, after a November cut that was the first reduction in more than two years. It also eased all lenders’ reserve requirements in February for the first time since 2012. The yield on seven-day reverse repos has been cut 30 basis points, or 0.3 percentage point, this month.

Falling Rates

The seven-day repo rate declined seven basis points, or 0.07 percentage point, to 3.96 percent as of 4:30 p.m. in Shanghai. It’s falling for an eighth day, the longest run of declines since August.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, declined four basis points to 3.40 percent, data compiled by Bloomberg show. The yield on China’s sovereign bonds due September 2024 was unchanged at 3.52 percent, according to prices from the National Interbank Funding Center.

“There’s still fairly big downward pressure in the economy, and easing measures continue to be necessary,” said Frank Sun, an analyst at Shanghai CFETS-ICAP International Money Broking Co. in the city.

— With assistance by Helen Sun

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