Bloomberg News

China Two-Year Swaps Reflect Bets for Rate Cut in Next 12 Months

September 25, 2011

Sept. 26 (Bloomberg) -- China’s interest-rate swaps fell the most in four months and, for the first time since May 2009, reflect expectations borrowing costs will be cut within a year.

Two-year contracts, which exchange the central bank’s one- year deposit rate for a fixed payment, dropped seven basis points to 3.47 percent as of 9:44 a.m. in Shanghai, the biggest drop since May 17, according to data compiled by Bloomberg. A rate of 3.50 percent would reflect bets for no change in the official savings rate in the coming year, while a 3.625 percent level would indicate one increase of 25 basis points.

Central bank Governor Zhou Xiaochuan said economic growth momentum “remains relatively strong, but faces challenges such as relatively fast rises in consumer prices and relatively large amount of capital inflows in the short term,’’ according to a statement posted on the central bank’s website yesterday.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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