China Money Rate Climbs Most in Two Years as PBOC Drains Funds

  • PBOC withdrawals rise to 960 billion yuan in three weeks
  • Post-holiday liquidity tighter than expected, analyst says

China’s two-week money-market rate climbed the most in almost two years as the central bank drained funds from the financial system and a weakening yuan reduced the possibility of monetary easing.

The 14-day repurchase rate, a gauge of interbank funding availability, surged 52 basis points, the most since December 2014, to a two-week high of 3.03 percent, according to weighted average prices. The overnight cost climbed 10 basis points, while the seven-day rate rose 12 basis points.

The People’s Bank of China pulled a net 184.5 billion yuan ($27.3 billion) via open-market operations on Monday and Tuesday, bringing total withdrawals since Sept. 26 to 959.6 billion yuan, data compiled by Bloomberg show. The yuan has declined about 1 percent since mainland markets reopened on Oct. 10 after a week-long holiday, cramping the central bank’s room to ease policy.

“The PBOC pulled more funds than we expected, and the post-holiday market is tighter than we thought,” said Song Qiuhong, an analyst at Shunde Rural Commercial Bank Co. in Foshan in Guangdong province. “Given the falling yuan and the authorities’ intention to control risks in the real estate sector, it’s very unlikely to see interest rates falling.”

Policy makers have extended the tenors of money-market lending tools recently, spurring speculation that it wants to curb excessive use of leverage in bond investments and cool an overheated property market. China’s financial regulators plan to tighten control on funds flowing into the property market, according to people familiar with the matter. Authorities including the central bank aim to tighten control on speculative real-estate investments and money involved in land transactions, the people said.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose one basis point to a four-month high of 2.57 percent in Shanghai, data compiled by Bloomberg show. Government bonds declined, with the 10-year yield climbing one basis point to 2.70 percent, National Interbank Funding Center prices show.

— With assistance by Helen Sun

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