Bloomberg News

China Repo Rate Falls on Speculation PBOC Will Boost Liquidity

October 19, 2011

Oct. 19 (Bloomberg) -- China’s benchmark money-market rate declined on speculation the central bank will inject more funds into the financial system as part of efforts to prop up growth in the world’s second-largest economy.

China may cut interest rates and introduce a new stimulus plan equivalent to trillions of yuan if slowing growth becomes “more serious,” the China Securities Journal yesterday cited Wang Jian, secretary general of the National Development and Reform Commission’s China Society of Macroeconomics, as saying. Gross domestic product expanded 9.1 percent last quarter, the weakest pace since 2009, data showed yesterday.

“We believe the policy stance is likely to see some relaxation in the coming months,” Yu Song, an analyst at Gao Hua Securities Co. Ltd., wrote in a note to clients. “The exact timing and magnitude of the relaxation will to a very large extent depend on external demand as it has a much higher level of uncertainty compared with inflation.”

The seven-day repurchase rate, a gauge of funding availability in the financial system, fell 11 basis points, or 0.11 percentage point, to 3.37 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

The People’s Bank of China has injected cash into the financial system every week for the past three months to help ease a credit squeeze, pumping in a total 565 billion yuan ($89 billion).

The economy may cool rapidly as a result of bankruptcies of small- and medium-sized companies through early 2012, Wang was cited as saying in the newspaper.

Bond Auction

China sold five-year bonds at a lower yield than investors estimated as demand for sovereign debt rose amid signs of the weakness in the economy.

The Ministry of Finance issued 29.3 billion yuan ($4.6 billion) of notes due 2016 at an average rate of 3.55 percent, according to a trader at a finance company that participates in government debt auctions. That compared with a median estimate of 3.58 percent in a Bloomberg News survey of seven fixed-income analysts and traders.

The yield on the 3.93 percent government bond due August 2021 was little changed at 3.74 percent, according to the Interbank Funding Center. The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, rose three basis points to 3.50 percent.

--With assistance from Judy Chen in Shanghai. 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: James Regan at jregan19@bloomberg.net.


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