Chinese banks’ borrowing costs dropped as the central bank added cash to the financial system by offering reverse-repurchase agreements.
The People’s Bank of China sold 65 billion yuan ($10.3 billion) of seven-day reverse-repo contracts today at 3.53 percent, according to a statement on its website. That was 27 basis points lower than the similar-maturity rate in the secondary market yesterday.
“The reverse repo is part of the easing policy,” said Shi Lei, head of fixed-income research in Beijing at Ping An Securities Co., a unit of the nation’s second-biggest insurance company. “The central bank is using the reverse repo to guide market rates lower.”
The Shanghai interbank offered rate that banks charge one another for one-month loans fell 12 basis points, or 0.12 percentage point, to 3.97 percent, according to a daily fixing announced at 11:30 p.m. by the National Interbank Funding Center. That was the biggest decline since April 17.
The six-month swap rate, the fixed cost to receive the seven-day repurchase rate, rose one basis point to 3.40 percent as of 4:30 p.m. in Shanghai, according to data compiled by Bloomberg. It reached 3.33 percent earlier.
The central bank is set to inject a net 117 billion yuan into the market this week, the most in more than three months, said Frances Cheung, a Credit Agricole CIB strategist in Hong Kong.
The seven-day repo rate, a gauge of funding availability in the financial system, increased four basis points to 3.85 percent, according to a weighted average compiled by the National Interbank Funding Center.
“The reverse repo today could be a signal of the uneasiness of the PBOC on the current near 4 percent seven-day repo fixing levels,” Wee-Khoon Chong, a Hong Kong-based strategist at Societe Generale SA, wrote in a report today. “Our view is for seven-day repo fixings to edge lower, closer to 3 percent.”
The yield on the 3.44 percent government bonds due June 2016 was steady at 3.13 percent, according to the Interbank Funding Center.
--Judy Chen, Kyoungwha Kim. Editors: Andrew Janes, Ven Ram
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