Bloomberg News

China Money Rate Gains a Third Day on Pre-Holiday Cash Demand

January 16, 2012

Jan. 16 (Bloomberg) -- China’s money-market rate rose for a third day on speculation a cash shortage is worsening as banks hoard money ahead of the weeklong Lunar New Year holiday.

The People’s Bank of China will suspend debt sales ahead of the holiday that starts on Jan. 23 and will conduct reverse- repurchase operations based on demand, according to a note on its website on Jan. 6. A government report tomorrow may show economic growth cooled in the fourth quarter to the least since the period ended June 2009, according to a Bloomberg survey.

“Further tightening may trigger reverse repo operations by the PBOC this week,” Ju Wang, a Barclays Capital strategist in Singapore, wrote in a research report today. “We continue to believe reserve-ratio cuts are needed in the first quarter to solve the structural tightness in banking system liquidity, as foreign-exchange inflows and fiscal spending patterns are unfavorable.”

The seven-day repurchase rate, a gauge of funding availability in the financial system, increased 53 basis points, or 0.53 percentage point, to 5.43 percent as of 10:04 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That was the highest level since Dec. 30.

The central bank cut the amount of cash that banks must set aside as reserves for the first time since 2008 last month as Europe’s debt crisis dimmed the outlook for exports and growth. The 50 basis-point decrease in reserve-requirement ratios took effect on Dec. 5.

GDP Report

China’s gross domestic product, the value of all goods and services produced, rose 8.7 percent from a year earlier in the three months ended December, compared with 9.1 percent in the prior quarter, according to the median forecast of 26 economists surveyed by Bloomberg News. Foreign-exchange reserves dropped in December, central bank data released on Jan. 13 showed.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, was little changed at 3.08 percent in Shanghai, according to data compiled by Bloomberg. The yield on the 3.93 percent government bonds due August 2021 rose two basis points to 3.42 percent.

--Editor: Simon Harvey, James Regan

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

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


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