Bloomberg News

China Repo Extends Biggest Jump in Five Weeks on Holiday Demand

March 27, 2012

China’s benchmark money-market rate rose, after yesterday climbing the most in five weeks, on speculation demand for cash will increase before a holiday next week.

The seven-day repurchase rate, a gauge of funding availability in the financial system, is still headed for its biggest quarterly decline in a year as the People’s Bank of China reduced banks’ reserve requirements twice since the start of December. China’s financial markets will close on the first three days of next week for a public holiday.

“The interbank borrowing rate could be volatile later in the week ahead of next week’s public holiday,” said Li Wei, a Shanghai-based economist at Standard Chartered Plc. Still, “banks are not charging each other high rates because demand for new loans is low.”

The repurchase rate rose one basis point, or 0.01 percentage point, to 3.31 percent in Shanghai, after dropping as much as 39 basis points earlier, according to a weighted average compiled by the National Interbank Funding Center. It slid 229 basis points this quarter, the most since the first three months of 2011.

Premier Wen Jiabao pledged March 5 to fine-tune policies and “appropriately adjust” credit to support growth amid a “tortuous” road to recovery for the global economy. Central bank Governor Zhou Xiaochuan said the following week that the nation has large scope in theory to lower banks’ reserve requirements further.

Loans, Profits

China’s banks made 1.45 trillion yuan ($230 billion) of new loans in January and February, the slowest start to a year since 2008, official figures show. Chinese industrial companies had their first January-February profit decline since 2009 as slowing exports and a government campaign to rein in property prices damped earnings, official figures showed today.

“If we see foreign-exchange outflows accelerate, we may see another reduction in the reserve ratio,” said Chen Qi, co- head of fixed-income research at UBS Securities Co. in Shanghai. Chen said. “There was speculation liquidity would tighten before quarter-end, but large banks are still lending in the money market.”

The monetary authority will sell 70 billion yuan ($11 billion) of 28-day repurchase agreements today, according to a trader at a primary dealer required to bid at the auctions.

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, was little changed at 3.17 percent, taking this quarter’s advance to 25 basis points, according to data compiled by Bloomberg.

To contact the reporter on 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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