China calls for bank tightening

China’s benchmark money-market rate climbed to the highest level in more than a month as the central bank said it will strengthen liquidity management amid speculation borrowing costs will increase.

Policy makers will use more quantitative and price measures to manage liquidity, People’s Bank of China Deputy Governor Hu Xiaolian said yesterday. The central bank has already raised lenders’ reserve requirements twice this month. Interest rates could climb a quarter of a percentage point by the end of the year, said Chris Leung, a senior economist at DBS Bank.

“The expectation of an interest-rate hike is pushing money markets up,” said Hong Kong-based Leung. “I don’t think there will be further reserve-requirement hikes. Enough has been done on the supply side, but work needs to be done on the demand side.”

The seven-day repurchase rate, which measures lending costs between banks, jumped 15 basis points to 2.48 per cent, according to a daily fixing published at 11 am by the National Interbank Funding Center in Shanghai. That was the highest level since October 8. A basis point is 0.01 percentage point.

The one-month Shanghai Interbank Offered Rate, or Shibor, advanced 17 basis points to 3.43 per cent, the highest since September 30, according to a fixing by the interbank funding center.

Swaps climb
Two-year swaps, the fixed rate needed to receive the floating seven-day repo rate, advanced for a fifth day. The rate rose two basis points to 3.30 per cent, data compiled by Bloomberg show.

The PBOC sold three-month bills in open-market operations today at 1.8 per cent, unchanged from last week. It offered 3 billion yuan ($451 million) of 91-day notes, the smallest amount this year. The central bank also sold 1 billion yuan of three- year bills at three per cent, unchanged from the previous sale on November 11. The monetary authority has let the yields on both bills rise twice since it raised benchmark lending and deposit rates October 19, the first increase since 2007, to help curb inflation.

A government report on November 11 showed inflation quickened to 4.4 per cent in October, the fastest pace in two years.