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China’s Swaps Trade Near 7-Month Low on Signs Inflation to Ease

Nov. 7 (Bloomberg) -- China’s interest-rate swaps traded near a seven-month low on speculation easing inflation will give policy makers more leeway to implement policies to boost growth.

Consumer prices rose 5.4 percent in October from a year earlier, compared with 6.1 percent in September, according to the median estimate of economists surveyed by Bloomberg before a report this week. Inflation may reach 5.5 percent in October, China Securities Journal reported today, citing Fan Jianping, director of economic forecasting at the State Information Center. Economic growth may slow to about 8.8 percent in the fourth quarter, he said.

“Inflation should fall sharply, and we expect moderating growth in monetary aggregates, which will allow policy makers to take the foot off the brake pedal,” said Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong. “Onshore rates and offshore markets will continue to position themselves for such a scenario.”

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, was unchanged at 3.24 percent in Shanghai. It traded at 3.23 percent earlier, near the 3.22 percent it reached on Nov. 4, the lowest level since March.

Gross domestic product increased 9.1 percent in the third quarter from a year earlier, after climbing 9.5 percent in the preceding three months, official figures show.

Lending Curbs Relaxed

The People’s Bank of China injected a net 96 billion yuan ($15 billion) of funds into the financial system last week, following two weeks of withdrawals, according to data compiled by Bloomberg.

The government relaxed lending curbs for small companies last month and the banking regulator indicated that local governments’ financing units may be able to extend loan repayments. The finance ministry approved direct bond sales by the cities of Shanghai and Shenzhen on Oct. 20 as well as the provinces of Zhejiang and Guangdong, making it easier for their financing arms to refinance debt.

The seven-day repurchase rate, a gauge of funding availability in the financial system, rose eight basis points, or 0.08 percentage point, to 3.58 percent, according to a weighted average compiled by the National Interbank Funding Center. The yield on the 3.93 percent government bond due August 2021 rose three basis points to 3.75 percent today.

To contact Bloomberg News staff for this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net;

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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