China Money Rate Trades Near 1-Year Low on Rate-Cut Speculation

China’s benchmark money-market rate traded near the lowest level in 12 months on speculation the central bank will lower interest rates to support economic growth.

Morgan Stanley economists led by Helen Qiao said the central bank may cut both lending and deposit rates twice this year, each time by 25 basis points, according to a research note released today. Premier Wen Jiabao said in Wuhan that the government will focus more on bolstering economic growth, the official Xinhua News Agency reported on May 20.

“The central bank may lower interest rates once this year, and the likelihood of a lending-rate cut is bigger than that for deposit rates,” said Liu Junyu, a bond analyst at China Merchants Bank Co., the nation’s sixth-biggest lender. “The seven-day repo may trade in a range between 2.5 percent and 3 percent before the middle of June.”

The seven-day repurchase rate, which measures interbank funding availability, declined two basis point, or 0.02 percentage point, to 2.67 percent as of 4:30 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It touched 2.45 percent on May 17, the lowest since May 2011.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose eight basis points to 2.75 percent, according to data compiled by Bloomberg.

Morgan Stanley cut its estimate for China’s growth in 2012 to 8.5 percent, from 9 percent, according to the research note. The central bank lowered reserve-requirement ratios for banks on May 12, the third reduction since November, after data showed exports and industrial production slowed in April.

The yield on the 3.41 percent government bonds due March 2019 rose one basis point to 3.20 percent.

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