China Money Rate Rises

China Money Rate Rises

China Money Rate Rises to Four-Month High on Intervention Bets

China’s overnight money-market rate rose to the highest level since April on speculation intervention by the central bank to support the currency will drain liquidity.

The People’s Bank of China bought yuan last week to stabilize the exchange rate in the wake of an Aug. 11 devaluation and said it would step in to curb large fluctuations. Interbank rates increased even as the PBOC pumped in 120 billion yuan ($18.8 billion) into the financial system Tuesday via the biggest offering of seven-day reverse-repurchase agreements since January 2014.

“Yesterday’s reverse repo hasn’t proved to be very effective,” said Chen Kang, a Shanghai-based analyst at SWS Research Co., a unit of Shenwan Hongyuan Group Co. “The PBOC is likely to increase reverse repos or cut reserve-requirement ratios to alleviate the short-term pressure on liquidity.”

The overnight repurchase rate, a gauge of liquidity in the banking system, rose three basis points to 1.76 percent as of 11:16 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That’s the highest level since April 27. The seven-day repo rate increased two basis points to 2.52 percent, the highest since July 27.

China’s foreign-exchange reserves are expected to drop by some $40 billion a month for the rest of this year as the central bank buys the Chinese currency, based on the median of 28 estimates in a Bloomberg survey of strategists and traders.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose one basis point to 2.58 percent, data compiled by Bloomberg show.

The yield on 10-year sovereign bonds due July 2025 increased two basis points to 3.54 percent, according to National Interbank Funding Center prices.

Source: bloomberg.com