China Rate Swaps Advance on Bets PBOC Won’t Increase Cash Supply

China’s interest-rate swaps rose on speculation the central bank will refrain from increasing the supply of cash amid a push to adjust to lower economic growth.

The nation needs to adapt to a “new normal” for expansion, Xinhua News Agency cited President Xi Jinping as saying in a May 10 report. Growth in industrial output and retail sales slowed in April, data released yesterday showed. The People’s Bank of China sold 97 billion yuan ($15.6 billion) of 28-day repurchase agreements yesterday, after absorbing a net 60 billion yuan from the financial system last week.

The one-year interest-rate swap, which exchanges fixed payments for the floating seven-day repurchase rate, climbed seven basis points, or 0.07 percentage point, to 3.76 percent as of 5:10 p.m. in Shanghai, data compiled by Bloomberg show. That’s the biggest jump since April 1. The contracts have fallen 37 basis points in the past month.

“The central bank is unlikely to change its monetary policy soon and is avoiding releasing too much liquidity,” said Li Haitao, an analyst at China Guangfa Bank Co. in Shanghai. “Rates have fallen too much earlier.”

The yield on government bonds due March 2024 was unchanged at 4.2 percent. The seven-day repo rate, a gauge of interbank funding availability, increased six basis points to 3.24 percent, according to a fixing from the National Interbank Funding Center.

Industrial production rose 8.7 percent in April from a year earlier, compared with the 8.9 percent median estimate in a Bloomberg survey, official data showed yesterday. Retail sales increased 11.9 percent, trailing the 12.2 percent gain predicted in a separate poll. The economy will grow 7.3 percent this year, according to the median estimate of analysts in a Bloomberg survey, compared with a target of about 7.5 percent.

To contact the reporter on this story: Justina Lee in Taipei at jlee1489@bloomberg.net

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

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