China’s benchmark money-market rate dropped to the lowest level in a week on speculation slowing economic growth and easing inflation will give the central bank more leeway to loosen monetary policy.
Government data last week showed China’s gross domestic product grew 9.1 percent last quarter, the least since 2009. Isaac Meng, portfolio manager at Pacific Investment Management Co., said in Sydney today that the pace of expansion may cool to 7 percent in the next 12 months. China must continue efforts to control food and housing prices, Premier Wen Jiabao said Oct. 22.
“I think there is a policy shift toward growth, but they don’t want to let inflation expectations go,” said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong. “In the near term, there will be neither major tightening nor loosening.”
The seven-day repurchase rate, a gauge of funding availability in the financial system, fell three basis points, or 0.03 percentage point, to 3.41 percent, according to a weighted average compiled by the National Interbank Funding Center. The rate touched 3.10 percent earlier, the lowest level since Oct. 14.
A total of 477 billion yuan ($75 billion) of bills and bonds may mature in October, more than last month’s 441 billion yuan, Cheung estimated. In November, 225 billion yuan will come due, she said.
Inflation moderated to 6.1 percent last month after reaching a three-year high of 6.5 percent in July, official data released Oct. 14 showed. Production capacity in manufacturing has seen an “obvious slowdown,” People’s Bank of China Governor Zhou Xiaochuan said in an online webcast on Sina.com.
The finance ministry sold 17.9 billion yuan of five-year bonds at a yield of 3.70 percent on behalf of local governments, according to a trader at a finance company that participates in the auctions. The ministry issued similar-maturity local government bonds at a yield of 4.3 percent on Aug. 29.
The yield on the 3.94 percent government bonds due January 2021 rose one basis point to 3.76 percent, reversing an earlier drop, after a preliminary reading showed China’s manufacturing may expand in October for the first time in four months. The reading of 51.1 for the index released by HSBC Holdings Plc and Markit Economics today was the highest in five months and compares with the final reading of 49.9 for September and August. A reading above 50 indicates expansion.
The market will continue to see whether there is any further change in the central bank’s bill auction yields this week, according to a report today by Ju Wang, a Singapore-based analyst at Barclays Capital.
The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, increased six basis points to 3.57 percent.