China Money Rate Drops to Three-Week Low After New Year Holidays

  • PBOC cuts reverse-repo offerings to 10 billion yuan Monday
  • Central bank may drain funds via OMOs this week, says analyst

China’s money-market rates fell to the lowest in more than three weeks as cash returned to the system after the week-long holidays.

The one-month repurchase rate, a gauge of interbank funding availability, declined two basis points to 2.88 percent as of 4:30 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That’s the lowest level since Jan. 20. The one-week Shanghai Interbank Offered Rate fell one basis point to a four-week low of 2.30 percent.

Money-market rates usually increase in the run-up to the Lunar New Year holidays when people withdraw money to pay for trips, feasts and gifts, and liquidity was drained further this year by record capital outflows. That prompted the People’s Bank of China to inject an unprecedented 1.7 trillion yuan ($261 billion) in the five weeks before the break via open-market operations, around four times as much as in the same period last year.

“As cash flows back to the banking system this week, there shouldn’t be much pressure on the money market,” said Song Qiuhong, an analyst at Shunde Rural Commercial Bank Co. in Foshan in Guangdong province. “So it’s possible the central bank will arrange a net withdrawal in open-market operations this week.”

The PBOC auctioned 10 billion yuan of seven-day reverse repos on Monday, after selling the same amount of the contracts on Sunday. There are 595 billion yuan of similar-maturity repo agreements that drain funds from the financial system due this week, data compiled by Bloomberg show.

China’s exports and imports declined in January from a year earlier, missing economists’ estimates for increases, data from the customs department show Monday. The PBOC strengthened the yuan’s reference rate by 0.3 percent as onshore financial markets reopened, the most in three months.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was unchanged at 2.29 percent, data compiled by Bloomberg show.

— With assistance by Helen Sun

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