Bloomberg News

China Money Rate Reaches 3-Year High Even as Bill Sale Suspended

June 23, 2011

June 23 (Bloomberg) -- China’s money-market rate soared to the highest level in more than three years on concern cash supply won’t rebound before the end of this month.

The seven-day repurchase rate, which measures interbank funding availability, gained for a seventh day even after the People’s Bank of China suspended a bill sale. The rate has more than doubled since the central bank ordered banks on June 14 to set aside more cash as reserves for a sixth time this year.

“Smaller banks are really short of money after the reserve ratio hike,” said Peng Hao, a bond analyst at Fudian Bank Co. in Kunming, capital of the southern Yunnan province. “Also, banks won’t lend to each other before the end of every quarter because they have to meet capital requirements.”

The seven-day repo rate climbed 23 basis points to 9.04 percent as of the 4:30 p.m. close in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. It touched 9.13 percent, the highest level since October 2007.

The monetary authority didn’t offer any repurchase agreements today, according to traders at primary dealers required to bid at the auctions. Central banks can withdraw cash from the financial system by selling repurchase contracts.

The central bank injected 87 billion yuan ($13.5 billion) of capital into the financial market this week, a sixth weekly injection, according to data compiled by Bloomberg.

The one-year interest rate swap, the fixed cost needed to receive the floating seven-day repurchase rate, rose three basis points to 3.96 percent, according to data compiled by Bloomberg. It touched 3.9750 percent, the highest level since Feb. 22. A basis point is 0.01 percentage point.

The yield on the 3.94 percent government bond due January 2021 climbed five basis points to 3.95 percent, according to the Interbank Funding Center.

China should raise interest rates to counter inflation, the China Securities Journal said in a front-page editorial today. An increase would push inflation-adjusted interest rates toward positive territory and drive funds back to banks, it said. Consumer prices rose 5.5 percent in May from a year earlier after having climbed 5.3 percent the previous month.

--Judy Chen. Editor: Sandy Hendry

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.


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