Interest rates rise as Spring Festival approaches

China’s benchmark money-market rate surged the most in 19 months, with record central bank cash injections being overwhelmed by demand before the Lunar New Year holidays.

The People’s Bank of China put in a net 410 billion yuan ($60 billion) through open-market operations on Wednesday, the biggest daily addition since Bloomberg began compiling the data in 2004. That brings the total injections so far this week to 845 billion yuan.

The interbank seven-day repurchase rate jumped 17 basis points, the most since June 2015, to 2.58 percent last week in Shanghai, according to weighted average prices.

Demand for cash tends to increase before the Lunar New Year holidays, when households withdraw money to pay for gifts and gettogethers.

Month-end corporate tax payments are adding to the pressure this time, with the break running from Jan 27 through Feb 2.

The PBOC offered 200 billion yuan of seven-day reverse repos and 260 billion yuan of 28-day contracts, compared with 50 billion yuan of loans maturing on Wednesday.

“The PBOC aims to ensure that the liquidity situation remains adequate, while the 28-day reverse repo is apparently targeted at covering the holidays,” said Frances Cheung, head of rates strategy for Asia ex-Japan at Societe Generale SA. “There could also be preparation for any indirect tightening impact from potential outflows.”

China’s central bank has been offering more 28-day reverse repos than one-week loans in the past two weeks, while curbing the injection of cheaper, short-term funds amid efforts to lower leverage in the financial system.

It drained a net 595 billion yuan in the first week of January, before switching to a net injection of 100 billion yuan last week as the seasonal funding demand started to emerge.

Liquidity conditions are under pressure also because loans are due to mature under the Medium-term Lending Facility, according to Long Hongliang, a trader at Bank of Hebei Co in Beijing.

There were 216.5 billion yuan of MLF contracts maturing last week, data compiled by Bloomberg show. The PBOC offered 305.5 billion yuan of loans to lenders using the tool on Jan 13, compared with 105.5 billion yuan due that day.

The PBOC aims to ensure that the liquidity situation remains adequate, while the 28-day reverse repo is apparently targeted at covering the holidays.” Frances Cheung, head of rates strategy for Asia ex-Japan at Societe Generale SA