China money rate climbs most in 2 years as PBOC drains funds

Shanghai / Agencies

China’s two-week money-market rate climbed the most in almost two years as the central bank drained funds from the financial system and a weakening yuan reduced the possibility of monetary easing.
The 14-day repurchase rate, a gauge of interbank funding availability, surged 52 basis points, the most since December 2014, to a two-week high of 3.03 percent, according to weighted average prices. The overnight cost climbed 10 basis points, while the seven-day rate rose 12 basis points.
The People’s Bank of China pulled a net 184.5 billion yuan ($27.3 billion) via open-market operations on Monday and Tuesday, bringing total withdrawals since September 26 to 959.6 billion yuan, data compiled by Bloomberg show. The yuan has declined about 1 percent since mainland markets reopened on October 10 after a week-long holiday, cramping the central bank’s room to ease policy.
“The PBOC pulled more funds than we expected, and the post-holiday market is tighter than we thought,” said Song Qiuhong, an analyst at Shunde Rural Commercial Bank Co. in Foshan in Guangdong province. “Given the falling yuan and the authorities’ intention to control risks in the real estate sector, it’s very unlikely to see interest rates falling.”
Policy makers have extended the tenors of money-market lending tools recently, spurring speculation that it wants to curb excessive use of leverage in bond investments and cool an overheated property market. China’s financial regulators plan to tighten control on funds flowing into the property market, according to people familiar with the matter. Authorities including the central bank aim to tighten control on speculative real-estate investments and money involved in land transactions, the people said.
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose one basis point to a four-month high of 2.57 percent in Shanghai, data compiled by Bloomberg show. Government bonds declined, with the 10-year yield climbing one basis point to 2.70 percent, National Interbank Funding Center prices show.
While the lingering effect of earlier easing may prop up growth in coming months, Beijing is expected to slow down the pace of lending, Capital Economics China economist Julian Evans-Pritchard said in a response to the latest figures.
Beijing has relied on stimulus measures such as loose credit to boost the economy, which faces a tough structural transition and sluggish global demand. But the rapid rise in borrowing has sparked alarm.
The International Monetary Fund warned earlier this month that China’s dependence on debt was growing at a “dangerous pace” and called on Beijing to curb credit growth.
“By maintaining high near-term growth momentum in this manner, the economy faces a growing misallocation of resources and risks an eventual disruptive adjustment,” it said.
China is set to release a set of economic indicators on Wednesday, including third-quarter GDP growth, industrial output and retail sales.
China’s total debt hit 168.48 trillion yuan ($25 trillion) at the end of last year, equivalent to 249 percent of GDP, the China Academy of Social
Sciences has estimated.