Bloomberg News

China Repo Rate Rebounds From 13-Month Low as PBOC Drains Cash

May 29, 2012

China’s benchmark money-market rate rose, extending a rebound from a 13-month low, as the central bank drained funds from the financial system following a relaxation of lenders’ reserve requirements.

The People’s Bank of China sold 50 billion yuan ($7.9 billion) of 28-day repurchase agreements at 2.8 percent today, according to a trader at a primary dealer required to bid at the auctions. The monetary authority withdrew 78 billion yuan using open-market operations last week and 64 billion yuan in the five days ended May 18, when the cut in reserve ratios took effect, according to data compiled by Bloomberg.

The seven-day repurchase rate, a gauge of funding availability in the financial system, climbed nine basis points, or 0.09 percentage point, to 2.58 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The rate reached 2 percent on May 24, the lowest level since April 2011.

“The repo rate was too low and a small rebound is expected unless we see another round of reserve-requirement easing,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “We see a range of 2.5 percent to 3.25 percent for the seven-day repo.”

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, increased one basis point to 2.60 percent in Shanghai, according to data compiled by Bloomberg.

Deposit Auction

The central bank sold 60 billion yuan of nine-month treasury deposits to commercial banks today on behalf of the Ministry of Finance at 4.22 percent, according to a trader required to bid at the sales. That compares with a 5.9 percent yield at the last sale of similar-maturity deposits in June 2011 and is lower than the People’s Bank of China’s six-month deposit rate of 6.1 percent.

“The yield is very low,” Chong said. “The deposit auction is a reflection of how much banks need money. It’s no big surprise here as there is ample liquidity in the system post the recent reserve-requirement cut.”

The yield on 3.51 percent government bonds due February 2022 rose three basis points to 3.38 percent today.

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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