China’s Money Rate Climbs to Three-Month High as Taxes Come Due

Updated on
  • Speculation grows central bank won’t inject too much liquidity
  • PBOC intention to keep yuan stable curbs loosening: analyst

China’s benchmark money-market rate rose to a three-month high on speculation banks were reluctant to lend as corporate tax payments come due and that the central bank will refrain from adding too much liquidity as it seeks to protect the currency.

The seven-day repurchase rate, a gauge of interbank funding availability, rose four basis point to 2.44 percent as of 4:49 p.m. in Shanghai, according to weighted average prices from the National Interbank Funding Center. The cost of borrowing among banks rose for a sixth day, the longest streak since August, even after the People’s Bank of China injected funds via open-market operations for a seventh day.

Commercial banks in the mainland are required to park companies’ tax payments with the PBOC in the month following a quarter’s end. The amount coming due this month is estimated by Huachuang Securities Co. at 400 billion yuan ($59.9 billion). Central bank Deputy Governor Chen Yulu said on Sunday China will work hard to keep the yuan stable against a basket of currencies.

“Tax payments are a seasonal factor that’s affecting the interbank liquidity,” said Sun Binbin, a fixed-income analyst at China Merchants Securities Co. “If the PBOC wants to stabilize the yuan, the possibility of aggressive liquidity injection would drop significantly, as that adds to depreciation pressure.”

The PBOC injected a net 70 billion yuan on Tuesday via seven-day reverse-repurchase agreements, adding to the 100 billion yuan it pumped in on Monday and the 155 billion yuan last week, data compiled by Bloomberg show.

The yuan strengthened 0.08 percent to 6.6754 against the dollar Tuesday, after halting a six-week losing streak amid speculation the central bank will prevent the currency from dropping below an exchange rate of 6.7.