Bloomberg News

China Money Rate Drops Most in Three Weeks on Cash Injection

November 02, 2011

Nov. 2 (Bloomberg) -- China’s money-market rate declined the most in three weeks on speculation the central bank will add funds to the system to help ease a cash shortage.

The People’s Bank of China may inject capital this week to support the economy, according to Wang Huane, a senior bond trader at Qilu Bank Co. About 107 billion yuan ($16.8 billion) of bills are due to mature in the five days through Nov. 4, she said. Reports over the past two weeks showed economic growth, exports and manufacturing slowed, raising concern the debt crisis in Europe is starting to affect regional markets.

“The central bank is trying to prevent a cash shortage as data points to a slowdown,” said Wang in Jinan, the capital city of eastern Shandong province. “The withdrawals and the bond issuance in October took too much capital from the financial market.”

The seven-day repurchase rate, a gauge of interbank funding availability, dropped 70 basis points to 3.70 percent as of 10:34 a.m. in Shanghai, the biggest decline since Oct. 12, according to a weighted average compiled by the National Interbank Funding Center. It has fallen 210 basis points, or 2.10 percentage points, from a three-month high of 5.8 percent on Oct. 31.

The Purchasing Managers’ Index, a measure of Chinese manufacturing, fell to a 32-month low of 50.4 last month from 51.2 in September, the China Federation of Logistics and Purchasing said yesterday. A reading above 50 signals expansion.

The PBOC canceled a sale of repurchase agreements yesterday to avoid drawing cash from the banking system. It went ahead with a 10 billion yuan offering of one-year bills.

China’s one-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repo, declined three basis points to 3.44 percent in Shanghai, according to data compiled by Bloomberg.

Government bonds rose. The yield on the 3.99 percent notes due June 2021 dropped two basis points to 3.74 percent, the lowest level since the debt started trading in June, according to the Interbank Funding Center.

--Judy Chen. Editors: Simon Harvey, Sandy Hendry

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

%CNY

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


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