Bloomberg News

China Repo Rate Snaps Two-Day Rise on Speculation of Reserve Cut

April 27, 2012

China’s benchmark money-market rate fell, snapping a two-day climb, on speculation policy makers will lower banks’ reserve requirements to meet rising cash demand as companies prepare for tax payments.

The People’s Bank of China pumped a net 64 billion yuan ($10 billion) into the financial system this week, a fifth weekly injection, according to data compiled by Bloomberg. China’s monetary authority pledged last week to ensure adequate availability of cash in the financial system by using tools including reductions in the reserve-requirement ratio.

“There’s a temporary decline in the repo rate which doesn’t change the picture too much” as cash supply remains tight due to corporate tax payments, said Andre de Silva, Hong Kong-based head of Asian rates research at HSBC Holdings Plc. “We still expect a cut in the reserve requirements to materialize in coming weeks.”

The seven-day repurchase rate, a gauge of funding availability in the financial system, decreased 11 basis points, or 0.11 percentage point, to 3.88 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The rate fell six basis points this week.

The central bank has cut reserve requirements twice since November and last reduced the proportion of cash that lenders must set aside in February, lowering the reserve-requirement ratio for major lenders by half a percentage point to 20.5 percent.

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, decreased two basis points to 3.25 percent in Shanghai, according to data compiled by Bloomberg. The rate rose three basis points this week.

The yield on 3.51 percent government bonds due February 2022 fell one basis point to 3.54 percent, according to the National Interbank Funding Center. The yield fell two basis points this week.

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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