Bloomberg News

China’s Rate Swaps Drop for Second Month on Policy-Easing Signs

October 31, 2011

Oct. 31 (Bloomberg) -- China’s interest-rate swaps fell for a second month as the government eased lending curbs to combat a slowdown in Asia’s biggest economy.

Policy makers may relax lending standards as the “next logical step” after announcing selective easing measures to support growth, according to China International Capital Corp. The government will “firmly” maintain its property curbs and “fine-tune” other economic policies at an appropriate time, according to an Oct. 29 statement following a State Council meeting chaired by Premier Wen Jiabao.

“The authorities’ focus is changing, albeit very gradually, from inflation to growth,” said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong. “Words such as ‘fine-tuning’, ‘targeted’ and ‘flexible’ were emphasized again, suggesting less tightening or some easing in certain segments of the economy.”

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, decreased 17 basis points to 3.58 percent in Shanghai. It declined four basis points today.

The seven-day repo rate, a gauge of funding availability in the financial system, fell five basis points this month to 4.97 percent, according to a weighted average compiled by the National Interbank Funding Center. It slid seven basis points, or 0.07 percentage point, today.

The government relaxed lending curbs for small companies this month and the banking regulator indicated last week that local authorities’ financing units may be able to extend loan repayments. The Finance Ministry approved direct bond sales by the cities of Shanghai and Shenzhen on Oct. 20 as well as the provinces of Zhejiang and Guangdong, making it easier for their financing arms to refinance debt.

Banks will be allowed to sell financial bonds to help fund increased lending to small firms, the China Banking Regulatory Commission said on Oct. 25. The Ministry of Industry and Information Technology said on Oct. 26 it will work with other agencies to assist small businesses facing difficulties.

--Editors: James Regan, Ven Ram

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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