China’s benchmark money-market rate dropped by the most in three weeks after Premier Li Keqiang signaled the nation may take steps to boost economic growth.
The seven-day repurchase rate fixing snapped an 11-day gain, the longest rising streak since October 2007, after Li said China can’t ignore the “difficulties and risks” caused by increasing stress on the economy, according to a statement on the government’s website. China has policies in reserve to deal with any volatility this year, he said in the comments made at a March 26 meeting.
The seven-day repo rate, a gauge of interbank funding availability, 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 climbed 59 basis points, or 0.59 percentage point, for the week and 65 basis points in March, the most since October last year.
“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 since the weeklong Lunar New Year holiday ended in early February.
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, fell five basis points today to 4.27 percent in Shanghai, paring this week’s advance to eight basis points, data compiled by Bloomberg show. For the year, it’s down 96 basis points and headed for the first quarterly decrease since March 2013.
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 of manufacturing will probably come in at 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 bonds maturing in 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.