China’s money-market rate climbed for the first time in three days on speculation Agricultural Bank of China Ltd.’s sale of shares will drain liquidity in the financial system.
Agricultural Bank, the country’s largest lender by customers, plans to raise as much as $20.1 billion by selling stock in Shanghai and Hong Kong. It started offering shares online to both individual and institutional investors today. Industrial Securities Co. estimated in a report today as much as 500 billion yuan ($73.8 billion) will be locked up during the online money subscription period.
“The increasing demand for cash is caused by the online money subscription of AgriBank’s shares,” said Chen Liang, a bond analyst at Guohai Securities Co. in Shenzhen. “After investors who fail to secure full allocations of stock receive their funds back on July 9, the seven-day repo rate will drop to about 2.3 percent.”
The seven-day repurchase rate, which measures interbank funding availability, rose 19 basis points to 2.69 percent as of the 4:30 p.m. close in Shanghai, according to the National Interbank Funding Center. Yesterday’s close of 2.50 percent was the lowest since June 10.
The People’s Bank of China kept the yield on one-year bills at 2.0929 percent at a sale today, unchanged for a fourth week, according to a statement on the central bank’s website. China should focus on stable foreign trade growth to strengthen the economy, Xinhua news agency cited Vice Premier Wang Qishan as saying in a meeting yesterday.
“The stable bill yield shows the authorities are taking a wait and see approach,” said Guohai’s Chen. “The rate may stay stable till August.”
Weaker Yuan
The yuan weakened 0.06 percent to 6.7801 per dollar, according to the China Foreign Exchange Trade System. It’s appreciated 0.7 percent since a two-year currency peg was relaxed on June 19. The central bank set the reference rate at 6.7790, 0.08 percent weaker than yesterday’s.
“The yuan’s spot rate is simply following the fixing today,” said Guan Jiaying, an analyst in Beijing at China Citic Bank Co., a unit of China’s biggest state investment company.
Government bonds rose on optimism the central bank will refrain from pulling money from the interbank market to sustain expansion in the world’s fastest-growing major economy.
Risks to Growth
Premier Wen Jiabao said over the weekend the government faces increasing “dilemmas” as the impact of the global financial crisis is more severe than expected. He pledged to maintain continuity in setting policy amid “very complicated” situations at home and abroad.
“The market believes the central bank will ensure ample liquidity as economic growth faces risks of a slowdown,” said Tang Guohui, a bond analyst at Industrial Securities Co. in Shanghai.
The yield on the 3.25% note due May 2020 declined three basis points to 3.22%, and the price of the security gained 0.25 per 100 yuan face amount to 100.29, according to the China Interbank Bond Market. A basis point is 0.01% point.
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