Bloomberg News

China Repo Snaps 3-Day Gain on Speculation Banks Closing Books

March 29, 2012

China’s benchmark money-market rate fell, snapping a three-day advance, on speculation most financial institutions have built up enough cash to prepare for the end of the quarter and public holidays.

The People’s Bank of China probably injected a net 19 billion yuan ($3 billion) into the financial system this week before a three-day holiday that starts April 2, according to Frances Cheung, a Credit Agricole CIB strategist in Singapore. The monetary authority will sell 20 billion yuan of 91-day repurchase agreements today, according to traders at primary dealers required to bid at the auctions.

“The preparation for month-end and quarter-end cash is almost done, while there is no specific relief of the overall liquidity situation,” said Cheung.

The seven-day repurchase rate decreased two basis points, or 0.02 percentage point, to 3.51 percent as of 5 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The rate, a gauge of funding availability in the financial system, declined 209 basis points this quarter, the most since the first three months of 2011.

The PBOC has reduced banks’ reserve requirements twice since the start of December to prop up a slowing economy.

Bank of China Ltd. said the country’s economy may grow by about 8.4 percent in the second quarter, according to a research report posted on the bank’s website today. China may cut the reserve-requirement ratio at least one more time in the first half as the growth of yuan positions for foreign-exchange purchases is at a lower level, according to the report.

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, fell two basis points to 3.13 percent, taking this quarter’s advance to 21 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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