Bloomberg News

China’s Money Rate at Highest Level This Month as Cash Drained

October 26, 2011

Oct. 27 (Bloomberg) -- China’s benchmark money-market rate rose to the highest level this month after the central bank drained cash from the financial system for a second week.

The seven-day repurchase rate, which measures interbank funding availability, rose for a third day as banks hoarded cash to boost capital to meet month-end requirements, according to Peng Hao, a bond trader at Fudian Bank Co. The People’s Bank of China withdrew a net 19 billion yuan ($3 billion) of capital this week, compared with 22 billion yuan of withdrawals in the five days through Oct. 21, according to Guo Caomin, a bond analyst at Industrial Bank Co.

“The central bank is now trying to manage liquidity through open-market operations at the moment,” said Kunming- based Peng. “It’s more flexible than reserve requirement ratio hikes.”

The seven-day repurchase rate gained 42 basis points to 4.53 percent as of 10:51 a.m. in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. It touched 4.56 percent, the highest level since Sept. 30.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose five basis points to 3.69 percent, climbing for a seventh day, according to data compiled by Bloomberg.

Six banks, including the nation’s five biggest lenders, will set aside more cash on Nov. 7 after policy makers broadened the scope of reserve requirements to include customers’ margin deposits in August, according to Guo at Industrial Bank in Shanghai. That may lock up around 140 billion yuan of capital, Guo estimated.

The central bank kept the yield on three-month bills unchanged at 3.1618 percent for a ninth sale, according to a statement on the regulator’s website today. It didn’t issue any repurchase contracts.

The yield on the 3.9 percent government bond due September 2012 was unchanged at 3.19 percent, according to the Interbank Funding Center. A basis point is 0.01 percentage point.

--Judy Chen. Editors: Sandy Hendry, Anil Varma

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

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


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