Bloomberg News

China Money Rate Drops on Signs PBOC to Add Cash Before Holiday

December 23, 2012

China’s overnight money-market rate dropped for a second day on speculation the central bank will inject capital to prevent cash shortage before national holidays.

The People’s Bank of gauged demand for possible auctions of seven-, 14- and 28-day reverse-repurchase contracts this week, according to a trader required to bid at the auctions. The central bank injected a net 92 billion yuan ($14.8 billion) into the financial system using money-market operations last week, according to data compiled by Bloomberg.

“Liquidity is quite stable,” said Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth biggest lender. “Banks are expecting the central bank to offer reverse repos if there is a jump in cash demand.”

The one-day repurchase rate, which measures interbank funding availability, dropped 12 basis points to 2.30 percent as of 10:25 a.m. in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center.

Demand for cash climbs before the weeklong break for Chinese New Year commences Feb. 11, a period in which families exchange gifts and get together for meals. China also has a three-day holiday starting Jan. 1.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, gained one basis points to 3.36 percent, according to data compiled by Bloomberg.

--Judy Chen. Editors: James Regan, Anil Varma

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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