Bloomberg News

China Money-Market Rate Falls as Nine-Day Rise Judged Excessive

March 04, 2013

China’s benchmark money-market rate fell, snapping a nine-day advance, on speculation recent increases were excessive and that the central bank will act to stabilize the market.

The People’s Bank of China gauged demand for offerings of seven- and 14-day reverse-repurchase contracts this week, according to a trader at a primary dealer required to bid at the sales. Pressure on China to tighten monetary policy is easing as inflation will be “relatively low” this month due to slowing food-price gains, PBOC adviser Song Guoqing said at a forum in Beijing on March 2, indicating he was giving his own view.

“Last week’s rate was too high,” said Wee-Khoon Chong, a rates strategist in Hong Kong at Societe Generale SA. “The PBOC should intervene more in terms of money-market operations.”

The seven-day repo rate, which measures interbank funding availability, fell 15 basis points to 4.29 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The rate was 2.91 percent two weeks ago, before the monetary authority sold repurchase contracts for the first time since June on Feb. 19.

Money-market operations by the PBOC drained a record 910 billion yuan ($146 billion) from the financial system that week, and 5 billion yuan in the five days ended March 1.

The one-year interest-rate swap, the fixed cost to receive the seven-day repo, dropped two basis points to 3.25 percent, data compiled by Bloomberg show. It touched 3.29 percent last week, the highest level since Jan. 18.

Facing Inflation

Yi Gang, a deputy governor, said yesterday the central bank is “fully confident” of controlling inflation this year. While the nation faces “some” inflationary pressure, the consumer-price index will rise about 3 percent in 2013, Yi told reporters at the start of the annual meeting of the Chinese People’s Political Consultative Conference, the nation’s top advisory body. That compares with 2.6 percent last year.

Premier Wen Jiabao will formally announce this year’s economic targets when he delivers his final work report at an annual meeting of parliament, the National People’s Congress, that begins tomorrow. The growth target for 2013 will be maintained at 7.5 percent, Bloomberg News reported in December, citing two bank executives and a regulatory official briefed on the matter. Last year’s 7.8 percent expansion in the world’s second-largest economy was the slowest since 1999.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

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


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