China Said to Change Opening-Price Mechanism for Key Money Rates

26/03/2014 07:41 AST

The People’s Bank of China plans to change the way it compiles the opening prices of benchmark money-market rates, according to two people with knowledge of the matter.

The National Interbank Funding Center will ask 50 financial institutions to submit quotes anonymously for overnight and seven-day repurchase agreements at 9 a.m. in Shanghai, and use these to set an opening level that would be published at 9:30 a.m., according to a document sent to market participants to solicit feedback. The document did not give a timeframe for the proposed change, the people said. Currently, the level is the first trade recorded after the market opens at 9 a.m.

“It’s going to help the indicators better reflect the real liquidity situation,” said Li Haitao, a Shanghai-based bond analyst at China Guangfa Bank Co. “The seven-day repo, in particular, is the underlying rate for a lot of transactions and derivatives, so it’s not desirable for regulators to see it distorted because of thin trading.”

China is loosening controls on borrowing costs to give market-determined interest rates a greater role in pricing risk. The seven-day repo or the Shanghai Interbank Offered Rate can become the nation’s new benchmark rate, PBOC Deputy Governor Yi Gang was cited as saying in a Nov. 26 report by the official Xinhua News Agency. Goldman Sachs Group Inc. has designated the seven-day repo its key barometer and stopped making forecasts for the central bank’s official lending and deposit rates, which were last adjusted in July 2012.

Policy makers removed last year a floor on the lending rates banks can charge to borrowers, and PBOC’s Yi said deposit-rate reform will be the focus this year and next, Caixin magazine reported on its website on March 22.

The seven-day repo rate, a gauge of funding availability on the interbank market, rose 26 basis points, or 0.26 percentage point, to 3.89 percent as of 10:54 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The overnight rate increased two basis points to 2.52 percent. The first transactions recorded today were at 3.60 percent and 2.50 percent, respectively.

Bloomberg