China’s benchmark money-market rate fell after Premier Wen Jiabao warned the momentum for an economic recovery isn’t yet in place, spurring speculation of more stimulus measures to come.
Wen said “difficulties” may persist for a while, according to a report yesterday from the official Xinhua News Agency. The People’s Bank of China gauged demand for seven-day reverse-repurchase agreements this week, according to a trader at a primary dealer required to bid at the auctions.
“We believe that more measures are forthcoming, but will focus on boosting lending via reserve-requirement cuts, as well as promoting infrastructure investment,” Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong, wrote in a research note today. “We expect the interest-rate curve to come under downward pressure, especially at the short end.”
The seven-day repurchase rate, which measures interbank funding availability, dropped seven basis points to 3.28 percent in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. The rate rose 15 basis points, or 0.15 percentage point, on July 13.
Wen’s comments follow data that showed Asia’s largest economy expanded by the least in three years in the second quarter as Europe’s fiscal crisis sapped exports and a crackdown on property speculation curbed domestic demand. The government will step up policy fine-tuning in the second half to support growth, Wen said, reiterating comments he made during a visit to eastern Jiangsu province earlier this month.
The central bank asked lenders to submit orders for 28- and 91-day repurchase contracts this morning, according to the same trader who declined to be identified because the information isn’t public.
The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, rose three basis points to 2.47 percent in Shanghai, according to data compiled by Bloomberg. It touched 2.35 percent on July 13, the lowest level since June 8. The yield on the 3.51 percent government bonds due February 2022 advanced three basis points to 3.27 percent.
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