Bloomberg News

China Swap Set for Biggest Weekly Drop in 5 Months on Inflation

May 10, 2012

China’s one-year interest-rate swap was set for the biggest weekly decline in five months on speculation slowing inflation will give the central bank more room to ease monetary policy.

Consumer prices rose 3.4 percent in April from a year earlier after a 3.6 percent gain in March, the National Bureau of Statistics said today. The People’s Bank of China added 41 billion yuan ($6.5 billion) of capital to the financial system this week, a seventh weekly injection, according to data compiled by Bloomberg.

“The central bank may cut reserve ratios again in the second quarter,” said Liu Junyu, a Shenzhen-based bond analyst at China Merchants Bank Co., the nation’s sixth-biggest lender. Inflation will probably ease further from next month due to consumer-price gains exceeding 6 percent from June through September last year, he said.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, fell 17 basis points this week to 3.19 percent as of 10:25 a.m. in Shanghai, according to data compiled by Bloomberg. It declined one basis point, or 0.01 percentage point, today.

The PBOC said it will use a combination of liquidity tools, including reverse-repurchase contracts, repurchase contracts, bills and the reserve requirement, to manage cash supply in the banking system, according to a quarterly reported posted on its website yesterday.

The seven-day repurchase rate, which measures interbank funding availability, dropped 65 basis points this week to 3.19 percent, according to a weighted average rate compiled by the National Interbank Funding Center. It fell four basis points today.

The yield on the 3.41 percent government bond due March 2019 dropped four basis points this week to 3.38 percent and two basis points today, according to the Interbank Funding Center.

--Judy Chen. Editors: Andrew Janes, James Regan

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

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


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