China Money Rate Rises Most in Eight Weeks as PBOC Pulls Funds

  • Quarter-end demand, accelerating loan growth affect liquidity
  • March new yuan loans may be above 1 trillion yuan: analyst

China’s benchmark money-market rate climbed the most in eight weeks, driven up by quarter-end demand and a withdrawal of funds by the central bank.

The monetary authority has pulled a net 135 billion yuan ($21 billion) from the financial system so far this week in open-market operations, spurring speculation that policy makers are trying to restrain credit growth. Interbank borrowing costs tend to rise in the March-April period because lenders have to deposit tax payments with the central bank, while commercial lenders hoard cash at the end of each quarter to meet regulatory checks.

The seven-day repurchase rate, a benchmark gauge of interbank funding availability, rose 11 basis points to 2.42 percent as of 3:29 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. Early data showed the rate advanced to 2.56 percent. A daily fixing compiled by the center climbed 12 basis points to 2.40 percent.

“The PBOC has been draining funds in open-market operations in the past three days at a time when lenders need to prepare cash at the quarter-end to prepare for regulatory checks,” said Li Liuyang, Shanghai-based chief financial market analyst at Bank of Tokyo-Mitsubishi UFJ (China) Ltd. “This may be affecting sentiment, and tightened the market a bit, but there’s no way the PBOC will let the market tighten much.”

Limited Range

The seven-day repo rate traded in a narrow range of 2.19 percent and 2.37 percent after last month’s Lunar New Year holidays. The PBOC pumped in a net 265 billion yuan in the last two weeks via reverse repos, data compiled by Bloomberg show.

Aggregate financing, the broadest measure of credit, and new yuan loans both climbed to all-time highs in January, before falling in February due to the week-long holidays. Industrial Securities Co. estimates that loans growth in March may have exceeded 1 trillion yuan, compared with 726.6 billion yuan in February and a record 2.5 trillion yuan in January.

“The quarter-end factor and the PBOC’s withdrawal may be among the reasons for the rising money-market rates, but a more important one may be the accelerating credit growth,” analysts led by Tang Yue at Industrial Securities wrote in a note Wednesday.

— With assistance by Helen Sun

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