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China’s benchmark money-market rate fell by the most in eight weeks as the central bank’s decision to conduct reverse-repurchase operations quenched banks’ thirst for money ahead of tomorrow’s reserve-requirement deadline.
The People’s Bank of China gauged demand for a sale of seven- and 14-day reverse repos tomorrow, according to a trader at a primary dealer required to bid at the auctions. The monetary authority offered 105 billion yuan ($16.5 billion) of 14-day reverse repos at a yield of 4.1 percent and 38 billion yuan of seven-day contracts at 3.95 percent yesterday, according to a statement on its website.
“Reverse repos can only be a short-term solution to address the liquidity tightness,” Frances Cheung, a Credit Agricole CIB strategist in Hong Kong, wrote in a note today. “We believe that further reserve-requirement cuts are needed to support the economy via boosting bank lending.”
The seven-day repurchase rate, a gauge of funding availability in the financial system, slid 31 basis points, the most since May 9, to 3.87 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.
China’s central bank has lowered lenders’ reserve- requirement ratios three times since November, cutting them by 50 basis points each time. It may reduce three more times in 2012, by 50 basis points each time, Shanghai Securities News reported on its website, citing a banking sector development report released by the China Banking Association today.
The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, fell two basis points, or 0.02 percentage point, to 2.57 percent in Shanghai, according to data compiled by Bloomberg. The yield on three-year government bonds was little changed at 2.51 percent, according to the Interbank Funding Centre.
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