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China Money Rate Snaps 11-Day Gain as Li Signals Policy Easing

China’s benchmark money-market rate snapped an 11-day gain to plunge by the most in three weeks after Premier Li Keqiang signaled authorities may take steps to boost growth.

The nation can’t ignore the “difficulties and risks” caused by increasing stress on the economy, Li said, according to a statement posted on the central government’s website. China has policies in reserve to deal with any volatility this year, Li said in the comments made at a March 26 meeting.

The seven-day repurchase rate, a gauge of interbank liquidity, fell 65 basis points today to 4.18 percent, according to a daily fixing compiled by the National Interbank Funding Center in Shanghai. The rate is up 59 basis points, or 0.59 percentage point, for the week.

“Policy makers have the leeway and ammunition to lower rates because there are concerns of corporate bond defaults and the slowing economy,” said Eugene Leow, an economist at DBS Group Holdings Ltd. in Singapore. “Money-market rates will likely be range-bound in the coming months rather than have an upward bias.” The seven-day repo rate may be between 3 percent and 5 percent in the next two quarters, he said.

The gauge more than doubled in the 11 days through yesterday to 4.83 percent as the People’s Bank of China withdrew a net 974 billion yuan ($157 billion) from the financial system in almost two months.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo, fell four basis points today to 4.28 percent as of 11:47 a.m. in Shanghai, paring this week’s advance to nine basis points, data compiled by Bloomberg show.

Easing Signal

Premier Li is sending a signal that the authorities may speed up the pace of policy easing, Zhiwei Zhang, chief China economist at Nomura Holdings Inc in Hong Kong, wrote in a report today. The firm expects a 50-basis-point cut in the reserve requirement, the ratio of deposits lenders must set aside, in the second quarter.

More Chinese companies are heading toward default as higher funding costs and slowing growth weigh on existing debt commitments, Viktor Hjort, Hong Kong-based head of Asia fixed-income research at Morgan Stanley, said in an interview this week. Solar-cell maker Shanghai Chaori Solar Energy Science & Technology Co. became the first company in China to default on its onshore notes earlier this month.

The official Purchasing Managers’ Index will probably be 50.1 for March, the lowest since June, according to the median estimate in a Bloomberg survey before data due April 1.

China’s average money-market rates may rise “moderately” and liquidity may be better than last year, China Securities Journal said in a front-page commentary written by reporter Zhang Qinfeng.

The yield on the government’s 4.08 percent notes due August 2023 rose two basis points this week to 4.52 percent, according to data from the National Interbank Funding Center. It was unchanged today.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Robin Ganguly, Anil Varma

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