Bloomberg News

China Swaps Reach Seven-Week Low on Bets PBOC May Ease Policy

October 11, 2011

Oct. 11 (Bloomberg) -- China’s interest-rate swaps fell to a seven-week low amid speculation the central bank will start relaxing monetary policy to shield the economy from Europe’s debt turmoil and a sputtering U.S. recovery.

China’s growth will slow in the third and fourth quarters although the pace won’t decline “excessively,” the Economic Information Daily reported today, citing Wang Wenbo, deputy director of the statistics department at the National Bureau of Statistics. The benchmark money-market rate declined for a second day as demand for funds eased after last week’s National Day holiday.

“While our core scenario is for a stable monetary policy, risks are clearly on the downside given the past tightening,” said Frances Cheung, senior strategist at Credit Agricole CIB in Hong Kong. “Should the economic environment warrant some kind of easing, previous tightening can be quickly reversed.”

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, sank two basis points to 3.68 percent in Shanghai as of 4:27 p.m. local time, according to data compiled by Bloomberg. It reached 3.67 percent in intraday trading, the lowest since Aug. 19. A basis point is 0.01 percentage point.

The seven-day repo rate, a gauge of funding availability in the financial system, fell 24 basis points to 4.20 percent, according to a weighted average compiled by the National Interbank Funding Center.

The People’s Bank of China sold 10 billion yuan ($1.6 billion) of one-year bills at an auction today. The yield was unchanged from the last sale at 3.584 percent.

--With assistance from Andrea Wong in Taipei. Editors: James Regan, Simon Harvey

To contact Bloomberg News staff for this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net;

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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