China’s benchmark money-market rates dropped to two-week lows on signs policy makers used targeted cash injections to ease the worst cash squeeze on record.
About 50 transactions for overnight funds in the interbank market were recorded in the final 90 minutes of trading in Shanghai over the past four trading days at rates of 4 percent or less, data compiled by Bloomberg show. The average was 5.08 percent. The central bank said June 25 that it had provided funding to some financial institutions to stabilize interbank lending rates and would use short-term liquidity operations to ensure steady markets.
The one-day repurchase rate, which measures interbank funding availability, fell 54 basis points, or 0.54 percentage point, to 4.42 percent as of 4:30 p.m. in Shanghai, the lowest since June 17, according to a weighted average compiled by the National Interbank Funding Center. The seven-day repo rate slid 71 basis points to 5.45 percent, earlier touching 5.40 percent, the lowest since June 17. The rates reached record highs of 13.91 percent and 12.45 percent on June 20.
“The market is expecting the cash crunch will ease,” said Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender. “The PBOC’s remarks have given the market some confidence.”
The People’s Bank of China signaled on June 25 that liquidity support during the cash squeeze would be focused on banks that lend to help the economy. The central bank today gauged demand for sales of seven- and 14-day reverse-repurchase contracts this week, according to a trader at a primary dealer required to bid at the auctions. It also assessed demand for 28-day repo contracts and 91-day bills, according to the trader.
The one-year swap contract, the fixed cost needed to receive the floating seven-day repo rate, held at 3.97 percent, according to data compiled by Bloomberg. Daily fixings for the seven-day repo averaged 6.81 percent in June, the highest in data going back to the start of 2004.
China’s banking regulator said the operations of its lenders won’t be disrupted because they’ve built up sufficient cash reserves. The holdings totaled about 1.5 trillion yuan ($244.4 billion) as of June 28, more than double what is usually required, Shang Fulin, chairman of the China Banking Regulatory Commission, said June 29 in Shanghai.
The yield on the 3.38 percent government bond due May 2023 was unchanged at 3.55 percent, according to the Interbank Funding Center.
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