China money rate increases as banks build up cash before holiday

[SINGAPORE] China's money-market rate climbed the most in a month on speculation banks will start hoarding funds to meet a seasonal pickup in cash demand before the Chinese New Year holidays.

The People's Bank of China is rolling over at least part art of the 269.5 billion yuan (US$43.4 billion) of three-month loans it extended to banks via the medium-term lending facility in October.

The monetary authority is opting to supply cash via means other than open-market operations, which haven't been conducted since November.

The seven-day repurchase rate, a gauge of interbank funding availability, climbed 27 basis points, or 0.27 per centage point, to 4 per cent in Shanghai, according to a daily fixing from the National Interbank Funding Centre. That's the biggest gain since Dec 19. The weeklong Lunar New Year holiday starts Feb 18.

"Liquidity could start getting tighter ahead of the holidays," said Andy Ji, a Singapore-based strategist at Commonwealth Bank of Australia.

"The PBOC has been providing liquidity but not through open-market operations."

The PBOC gauged demand for 14- and 28-day repurchase contracts before tomorrow's auction window, according to a trader at a primary dealer required to bid at the sales. The central bank also asked lenders to submit orders for 14-day reverse-repurchase agreements and 91-day bills, the trader said.

The monetary authority rolled over 30 billion yuan of three-month loans to to Industrial Bank Co that matured and lent an additional 20 billion yuan, Sina.com.cn reported on Tuesday, citing unidentified people. It also rolled over 20 billion of maturing loans extended to Shanghai Pudong Development Bank Co and lent an additional 20 billion yuan, the report said.

One-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, fell two basis points to 3.19 per cent, data compiled by Bloomberg show. The yield on government bonds due September 2024 also declined two basis points to 3.46 per cent, National Interbank Funding Center prices show.

BLOOMBERG