Bloomberg News

China Swap Rate Climbs to Two-Week High on Inflation; Yuan Drops

April 09, 2012

China’s interest-rate swaps climbed to a two-week high as data showed inflation accelerated more than forecast. The yuan declined.

The consumer price index rose 3.6 percent in March from a year earlier after increasing 3.2 percent in February, the National Bureau of Statistics said on its website today. The median estimate of 33 economists in a Bloomberg survey was for an increase of 3.4 percent.

“The CPI number is very high and disappointing,” said Ju Wang, a fixed-income strategist at Barclays Capital in Singapore. “It’s bad for sentiment as it may delay a reserve- requirement cut.”

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, climbed four basis points to 3.18 percent in Shanghai. The yuan fell 0.03 percent to 6.3085 per dollar, according to the China Foreign Exchange Trade System.

The People’s Bank of China didn’t gauge demand for bill sales this week, signaling it won’t drain cash from the financial system, according to a trader at a primary dealer required to bid at the auctions. The central bank gauged demand for 28- and 91-day repurchase agreements, the trader said.

The monetary authority cut lenders’ reserve requirements for the second time in three months in February to pump cash into the banking system after the economy expanded the least since mid-2009 in the fourth quarter.

China’s faster-than-estimated inflation for March may limit room for policy loosening, Goldman Sachs Group Inc. said in an e-mailed note today.

Currency Forwards

The seven-day repurchase rate, a gauge of funding availability in the financial system, fell 48 basis points, or 0.48 percentage point, to 3.75 percent after jumping to the highest level in almost six weeks on April 6.

Policy makers will seek to “prevent a rebound” in consumer prices and manage inflationary expectations, Premier Wen Jiabao said during a visit to southern China last week.

The yuan’s 12-month non-deliverable forwards decreased 0.02 percent to 6.3345 per dollar in Hong Kong, according to data compiled by Bloomberg. The contracts were at a 0.4 percent discount to the onshore spot rate. In Hong Kong’s offshore market, the yuan appreciated 0.07 percent to 6.3118.

The central bank set the reference rate 0.08 percent stronger at 6.3021 per dollar. The currency is allowed to trade 0.5 percent on either side of the daily fixing.

To contact the reporter on 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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