Bloomberg News

China’s Money Rate Gains as Cash Demand Rises Ahead of Holiday

January 09, 2012

Jan. 9 (Bloomberg) -- China’s benchmark money-market rate increased as banks prepare for rising cash demand ahead of the Chinese New Year holidays.

The People’s Bank of China will suspend debt sales ahead of the week-long holiday starting on Jan. 23, while conducting reverse-repurchase operations based on demand, the central bank said on its website on Jan. 6. The monetary authority added a net 51 billion yuan ($8.1 billion) to the banking system last week, the most since November, official data show.

“Liquidity is getting tighter as the Lunar New Year holiday approaches and the repo rate will move higher,” said Matt Huang, a strategist at Macquarie Group Ltd. in Singapore.

The seven-day repo rate, a gauge of funding availability in the financial system, rose 21 basis points to 4.52 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, fell one basis point, or 0.01 percentage point, to 3.03 percent.

“I think it’s difficult for swaps to follow just because people expect a cut in the reserve ratio,” Huang said.

Central bank Governor Zhou Xiaochuan said yesterday the nation must be ready to combat possible shocks from Europe’s debt crisis and an uncertain U.S. economic outlook, echoing comments by Premier Wen Jiabao. China cut the reserve requirement for banks last month for the first time since 2008.

December lending and money-supply growth exceeded economists’ estimates, according to data released over the weekend. New loans totaled 641 billion yuan, compared with 562 billion yuan in November, while M2, a measure of money supply, rose 13.6 percent, compared with the median estimate of analysts surveyed by Bloomberg for 12.9 percent.

The yield on 3.93 percent bonds due August 2021 fell one basis point to 3.39 percent, according to the Interbank Funding Center.

--Editors: Andrew Janes, Ven Ram

To contact Bloomberg News staff for this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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