China Money-Market Rate Posts Biggest Weekly Drop Since August

  • PBOC cut benchmark interest rates for the sixth time in a year
  • Ten-year sovereign bonds fall, halting nine weeks of gains

China’s benchmark money-market rate had the biggest weekly decline since August after the central bank eased monetary policy to spur economic growth.

The People’s Bank of China drained a net 25 billion yuan ($3.95 billion) from the banking system, the least in three weeks, and cut the rate on seven-day reverse repurchase contracts. It lowered benchmark borrowing costs for the sixth time in a year effective Saturday and reduced reserve requirements for banks, seeking to boost an economy that is forecast to grow 6.9 percent this year, the slowest pace since 1990.

“The reserve-ratio cut has injected ample liquidity into the market,” said Chen Kang, a Shanghai-based fixed-income analyst at SWS Research Co., a unit of Shenwan Hongyuan Group Co. “While we expect there’ll continue to be a net drain of cash from the system, the seven-day reverse repo rate will stay quite stable in the near term."

The seven-day repo rate, a gauge of interbank funding availability, dropped nine basis points this week to 2.3 percent, according to a weighted average from the National Interbank Funding Center. It was steady on Friday. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, declined seven basis points from Oct. 23 and rose one basis point on Friday to 2.32 percent. It slid to 2.258 percent on Tuesday, the lowest since May 18.

The nation needs annual growth of at least 6.53 percent in the next five years to meet the government’s goal of establishing a "moderately prosperous society," Premier Li Keqiang said in an Oct. 23 speech to Communist Party members, according to people familiar with the matter.

Chinese sovereign bonds fell, snapping a nine-week run of gains. The yield on notes due July 2025 rose two basis points this week and on Friday to 3.09 percent in Shanghai, according to National Interbank Funding Center prices. It declined 44 basis points over the last nine weeks.

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