China Overnight Rate Slides to 14-Month Low on Ample Cash Supply

China’s overnight money rate fell to its lowest in more than a year, a sign banks are flush with cash after monetary easing was stepped up in the past six months.

The People’s Bank of China has eased lenders’ reserve requirements and benchmark interest rates twice since November to support an economy expanding at the slowest pace in six years. More “decisive easing” is needed to contain deflation risks, HSBC Holdings Plc economist Qu Hongbin wrote in a research note today. The central bank didn’t conduct any open-market operations in Tuesday’s auction window.

The overnight repo rate, a gauge of funding availability in the interbank market, declined as much as five basis points to 1.72 percent, the lowest since February 2014, a weighted average from the National Interbank Funding Center shows. It was at 1.73 percent as of 4:30 p.m. in Shanghai.

“No doubt there’s ample liquidity in the banking system,” said Wang Ming, chief operations officer at Shanghai Yaozhi Asset Management LLP, which oversees 2 billion yuan ($322 million) of fixed-income holdings. “With the economy remaining weak and people expecting more growth-supportive measures, money rates will continue to be capped.”

The PBOC is discussing adopting unconventional policies including making direct purchases of local government bonds from the market, Market News International reported Monday, citing unidentified people. Previous reports from the Wall Street Journal and Bloomberg News indicated officials were considering letting banks use the notes as collateral for loans from the central bank.

IPOs Coming

Subscriptions for 25 companies’ initial public offerings are likely to lock up 2.34 trillion yuan in early May, according to a Bloomberg survey of eight brokerages. That would be less than 2.73 trillion yuan of funds tied up for new share sales earlier this month.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose one basis points to 2.54 percent, according to data compiled by Bloomberg. It sank to a 33-month low of 2.52 percent on Monday. The yield on sovereign bonds due December 2024 was little changed at 3.43 percent, National Interbank Funding Center prices show.

The Ministry of Finance asked local governments to accelerate issuance of municipal bonds, according to a statement dated April 22. Fiscal income slowed along with the economy, and the country faces some difficulty in achieving growth targets this year, the ministry said. Regional administrations are set to sell more than 1.7 trillion yuan of debt this year, up from 400 billion yuan in 2014.

— With assistance by Helen Sun

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