Source: Bloomberg
China’s interest rate swaps fell for the first time this week on speculation a cash shortage will persuade policymakers to cut banks’ reserve-requirement ratios.
The one-year rate reached the highest level in almost three months Wednesday as maturing reverse-repurchase contracts reduced the supply of funds. The People’s Bank of China added RMB353 billion (US$56 billion) via 14-day reverse-repo operations before the week-long Lunar New Year holiday that started on January 23. That was the biggest injection since Bloomberg began collecting the data in early 2008.
“I still expect China to do something and cut reserve ratios this month,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB. “I think liquidity is still going to be tight, if there is no liquidity injection.”
The one-year swap rate, the fixed cost to receive the seven-day repo rate, decreased two basis points, 0.02 percentage point, to 3.24 per cent in Shanghai, according to data compiled by Bloomberg. It touched 3.35 per cent Wednesday, the highest level since November 3.
The monetary authority suspended a sale of three-month bills for a sixth week Thursday as it pulled a net RMB351 billion out of the system after reverse repo contracts expired, ending four weeks of injections.
Meanwhile, the seven-day repurchase rate, a gauge of funding availability in the financial system, fell two basis points to 4.33 per cent, according to a weighted average compiled by the National Interbank Funding Centre.
“We expect a more visible drop in the fixing today, following the pattern of easier liquidity conditions in the first half of every month in China,” Ju Wang, a Barclays Capital strategist in Singapore, wrote in a report Thursday, referring to the seven-day repo fixing. The market is “waiting for more clarity on possible reserve-ratio cuts.”
China’s economy is headed for a “hard landing” this year as weaker demand overseas chokes off exports, said Gary Shilling, who correctly forecast the US recession that began in December 2007. A Chinese government report Wednesday showed that export orders fell last month, even as manufacturing expanded.
