Shanghai Interbank Rate at Two-Month High as Year-End Approaches

  • Banks stocking up on cash to meet regulatory requirements
  • Capital outflows contributed to the rise: Minsheng Securities

Borrowing costs in Shanghai rose to a two-month high as banks hoarded cash to meet client demand and to satisfy year-end regulatory requirements.

The one-month Shanghai Interbank Offered Rate advanced four basis points to 2.99 percent, the highest since October, according to the National Interbank Funding Center. The rate for three rose to a two-month high of 3.074 percent.

"The rally in Shibor is mainly due to year-end factors," said Li Qilin, a Beijing-based analyst at Minsheng Securities Co. "The capital outflows triggered by yuan depreciation also contributed to the rise."

The interbank offered rate usually climbs toward year-end as lenders stock up on funds to meet requirements such as loan-to-deposit ratios. China’s foreign-exchange reserves shrank $213 billion in the four months through November as a surprise yuan devaluation in August sent the currency into its steepest tumble in two decades.

The PBOC will lower its benchmark one-year lending rate to 3.85 percent by the end of 2016 from the current 4.35 percent, according to the median forecast of economists surveyed Dec. 17 to Dec. 22. The monetary authority is seen lowering major banks’ reserve-requirement ratio to 15 percent from 17.5 percent.

Bonds Gain

Sovereign notes due in October 2025 advanced for a seventh day, pushing the yield down to 2.86 percent, according to National Interbank Funding Center prices. That’s the lowest level for a benchmark 10-year note since January 2009, Chinabond data show.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, was little changed at 2.32 percent. The seven-day repo rate slipped three basis points to 2.31 percent, according to a weighted average from the National Interbank Funding Center.

— With assistance by Laura Yin, and Fion Li

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