China Swaps Fall on Speculation Banks’ Reserve Ratios to Be Cut

Monday, 16 Jan 2012 09:32 PM

 

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Jan. 17 (Bloomberg) -- China’s interest-rate swaps fell for the first time in four days on speculation the central bank will reduce lenders’ reserve-requirement ratios to help ease a cash shortage ahead of next week’s Lunar New Year holiday.

The People’s Bank of China injected 169 billion yuan ($26.8 billion) into the financial system via 14-day reverse-repurchase contracts today, according to Market News International, which cited an unidentified trader. China’s economy grew 8.9 percent from a year earlier in the three months through December, official data showed today, more than the 8.7 percent median forecast of economists surveyed by Bloomberg News.

“Liquidity is usually tight ahead of the new year, and especially given the more dovish PBOC stance, a near-term cut in the reserve ratio wouldn’t be a surprise,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, fell six basis points, or 0.06 percentage point, to 3.04 percent as of 9:41 a.m. in Shanghai, according to data compiled by Bloomberg.

The central bank cut the amount of cash that banks must set aside as reserves for the first time since 2008 last month as Europe’s debt crisis dimmed the outlook for exports and growth. The 50-basis point decrease in reserve-requirement ratios took effect on Dec. 5. The Chinese New Year holidays run from Jan. 23 to Jan. 27.

The yield on the 3.93 percent government bonds due August 2021 dropped one basis point to 3.40 percent. The seven-day repurchase rate, a gauge of funding availability in the financial system, increased 1.27 percentage points to 6.16 percent yesterday in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That was the highest level since July.

--Editors: Andrew Janes, 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

© Copyright 2014 Bloomberg News. All rights reserved.

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