China Money Market Rate Jumps

Banks thought to hold capital as end of quarter approaches

As the end of the first quarter approaches, Chinese money market rates have jumped, leading to speculation that banks in that country are hanging onto their cash in response to regulatory requirements that oblige them to boost capital.

Bloomberg reported Monday that last week the People’s Bank of China (PBOC) increased rural credit through cuts to the reserve requirement ratios for 379 more branches of the Agricultural Bank of China, the country’s third largest lender by market value. Also on Monday morning, PBOC asked banks to submit orders for 28- and 91-day repurchase contracts and did not evaluate demand for bill sales.

“Banks are still hoarding cash and are reluctant to lend," Frances Cheung, a Hong Kong-based senior strategist at Credit Agricole SA, was quoted saying "The Agricultural Bank’s case shows the central bank still prefers relaxing credit selectively to small and medium-sized enterprises.”

The seven-day repurchase rate, a measure of interbank funding availability, had climbed 33 basis points to 3.30% by late afternoon in Shanghai, according to the National Interbank Funding Center’s weighted average compilation. That is the largest increase since Feb. 23. Also, the one-year swap contract had fallen by 0.03% to 3.17%.

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