China’s Money Market Rate Falls Most in a Week on Policy Outlook

China’s benchmark money-market rate fell the most in a week on speculation the central bank will loosen monetary policy further to arrest an economic slowdown.

Premier Wen Jiabao said the world’s second-biggest economy faces increasing downward pressure, the Hunan Daily reported today, citing a speech he made in the southern Chinese province on May 25. The central bank gauged demand for 91-day repurchase contracts for an auction tomorrow, according to a trader required to bid at the sales.

The seven-day repurchase rate, which measures interbank funding availability, dropped 24 basis points to 2.35 percent as of 4:30 p.m. in Shanghai, the biggest decline since May 23, according to a weighted average rate compiled by the National Interbank Funding Center. It has slid 143 basis points this month, set for the biggest decline since July.

“Easing is the overall policy tone, so liquidity will remain loose,” said Duan Su, a bond analyst at Bank of Yinzhou in Ningbo. “Space for further declines in the seven-day repo rate is limited because the overnight rate is firm.”

The finance ministry issued at least 30 billion yuan ($4.7 billion) of five-year bonds today at a yield of 2.75 percent, compared with the median estimate of 2.65 percent in a Bloomberg News survey. The auction drew bids for 1.18 times the amount on offer, the person said.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, fell six basis points to 2.56 percent, the first drop in four days, according to data compiled by Bloomberg. It has slid 69 basis points this month, the most since September.

The yield on the 3.41 percent government bond due March 2019 rose one basis point to 3.18 percent, according to the Interbank Funding Center. A basis point is 0.01 percentage point.

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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