China's banks are paying twice the interest rate for government funds than they were a year ago, after higher reserve requirements led to a shortage of cash in the financial system and faster inflation growth damped deposits.
The Ministry of Finance received a 5.4 percent rate for 30 million yuan (4.5 billion) of money six months are offered in a monthly auction yesterday. rates comparable to the auction in December 2009 and January 2010 were 2.35 percent and 2.92 percent.
The demand for government money is being built after the People's Bank of China ordered lenders this month to set aside more deposits as reserves for the sixth time in 2010 as part of a plan to tame the fastest inflation in two years. China's efforts to ensure the stability of its economy led Standard & Poor's to raise China's credit rating yesterday, putting at least five levels above Brazil, India and Russia.
Banks, especially those who have paid deposits aggressively hungry, as they must meet the required 75 percent loan-deposit ratio by the end of year, "said Shi Lei, director of fixed income research in Shenzhen Ping An Co . Securities, a unit of the second largest insurer in China. "The situation is exacerbated by the recent cash crunch in the interbank market following recent increases in reserve ratio.
The repurchase rate seven days rose 45 basis points today to 3.72 percent, the highest since October 2008, according to fixations journal published by the National Center Shanghai interbank funding. This week's increase of 1.23 percentage points is the highest since October 2007. A basis point is 0.01 percentage point.
Yesterday's auction rate was the highest in the central bank's data going back to December 2006 and 47 basis points above the 4.93 percent of interest paid on deposits for the duration of government funding in November. Consumer prices rose 5.1 percent from a year earlier last month, the biggest gain since July 2008 and 2.9 percentage points higher than six months deposit rates banks can offer to households.
Yuan Chinese bank deposits rose by 1.1 percent during the past two months, compared with a rate of 3.7 percent growth reported for the period from August to September, official figures show. Loan growth remained stable at 2.5 percent. Year of growth of money supply M2 in China an average of 21 percent in the last 11 months, down from 27 percent in 2009.
Real Types :
"People do not want to save money in banks because real interest rates remain negative, inflation is accelerating," said Chen Jianheng, a bond analyst at China International Capital Corp. in Beijing. "So the growth in total deposits was slower than that of total loans."
The local currency loans outstanding at the end of November were 47.4 trillion yuan, up 60 percent over two years ago, and the money supply has increased by 55 percent during the same period, according to Central Bank figures.
The China Banking Regulatory Commission has asked commercial banks to manage credit risk "with utmost caution and thoroughness," said a statement sent a text message sent yesterday by the regulator.
Contingent liabilities in the banking system were recognized as a risk to the solvency of China in the rating announcement S & P yesterday. These were overcome by "substantial" in the nation's foreign exchange reserves and strong fiscal position, the company said.
long-term rating of China rose to a level of AA-, the fourth highest rank, and Hong Kong was promoted to AAA. Brazil and India have ratings BBB-, the lowest of 10 investment grades. Russia is a step in BBB.
Classification increases
The S & P decision follows a similar move by Moody's Investors Service last month, and simulates a trend in emerging markets, with countries from Indonesia to Brazil to Turkey upgrades or positive outlook.
"The increase in rating will increase China's attractiveness as an investment destination," said Ken Peng, a Beijing-based economist at Citigroup Inc. "The rating may be raised again, but it will take some time," Peng said, citing concerns about stimulus-linked loans could increase banks' bad loans.
China's economic growth last quarter was the fastest among the four countries and their $ 2650000000000 foreign exchange reserves are more than twice those of the other three.
The cost of insuring U.S. dollar denominated debt of the Chinese government for five years rose 1.6 basis points yesterday after ratings upgrade to 69.9, according to CMA prices. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent if the government or the company fails to meet debt agreements.
China Bonds
China's yuan-denominated government bonds fell today, pushing the 10-year debt to yield a minimum of six weeks. The rate at 3.29 percent note due in September 2020 rose two basis points to 3.86 percent, according to the price of the National Interbank Funding Center.
interest rate swaps to a year were little changed at 3.13 percent, data compiled by Bloomberg. The yuan was little changed at 6.6614 per dollar in Shanghai, has strengthened 2.4 percent against the dollar from a plug of two years ending 19 June. Delivery time in twelve months reflect a commitment to advance 2.3 percent next year.
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