China Swap Rate Rises to 20-Month High as Cash Shortage Persists

China’s one-year interest-rate swap climbed to a 20-month high on speculation banks are hoarding funds to meet quarter-end capital requirements, prolonging a cash shortage.

The People’s Bank of China added a net 92 billion yuan ($15 billion) into the financial system this week, down from 160 billion yuan in the five days through June 7, according to data compiled by Bloomberg. The one-year swap rate has increased every day since May 28, barring the three-day holiday at the start of the week.

“We are still bearish on the liquidity outlook because banks need to set aside cash for the mid-year accounting period and we will head into another tax payment season in July,” said Pin Ru Tan, an interest-rate strategist at HSBC Securities Asia Ltd. in Hong Kong.

The one-year contract, the fixed cost needed to receive the floating seven-day repurchase rate, gained two basis points to 3.67 percent as of 9:18 a.m. in Shanghai, the highest since October 2011, according to data compiled by Bloomberg.

The seven-day repo rose 11 basis points, or 0.11 percentage point, to 6.5 percent.

--Judy Chen. Editors: Simon Harvey, Robin Ganguly

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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