China’s swap rate climbed to a three-month high, reflecting a worsening cash crunch as the central bank refrains from easing lenders’ reserve requirements.
The 14-day repurchase rate, a gauge of interbank funding availability, jumped the most in almost two months even as the central bank injected 90 billion yuan ($14 billion) into the financial system using reverse-repurchase agreements. Reports last week showed banks extended the fewest new loans in July since September, while gains in industrial output, retail sales and exports slowed. The inflation rate fell to a 30-month low and Premier Wen Jiabao said yesterday there is scope to adjust monetary policy.
“There is disappointment from the lack of policy action since the weak economic data released last week,” said Pin Ru Tan, a Hong Kong-based rates strategist at HSBC Securities Asia Ltd. The central bank cut interest rates in June and July after lowering banks’ reserve-requirement ratios in May for the third time since November.
The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose five basis points, or 0.05 percentage point, to 2.91 percent as of 4:35 p.m. in Shanghai, according to data compiled by Bloomberg. It touched 2.92 percent, the highest since May 15.
The 14-day repo jumped 45 basis points to 4.10 percent, the biggest increase since June 25, according to a weighted average rate compiled by the National Interbank Funding Center.
The central bank entered into 70 billion yuan of seven-day reverse-repurchase contracts today and 20 billion yuan of 14-day agreements, pumping capital into the financial system by buying securities on a temporary basis. The seven-day reverse repo was conducted at a 3.35 percent yield and the 14-day at 3.6 percent. Open-market operations by the People’s Bank of China injected a net 75 billion yuan into the financial system this week, according to Industrial Bank Co. data.
The yield on the 3.14 percent government bond due February 2017 gained one basis point to 2.95 percent, according to the Interbank Funding Center.
--Judy Chen. Editors: James Regan, Amit Prakash
To contact Bloomberg News staff for this story: Judy Chen in Shanghai at firstname.lastname@example.org.
To contact the editor responsible for this story: Sandy Hendry at email@example.com.