China Swaps, Yuan Decline After Third Rate Cut in Six Months

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China’s interest-rate swaps fell to the lowest level in almost three years and the offshore yuan declined after the central bank reduced benchmark borrowing costs for the third time in six months.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, retreated five basis points to 2.43 percent, the lowest level since July 2012, in Shanghai Monday, data compiled by Bloomberg show. The rate tumbled 1 percentage point in April, the biggest monthly loss since 2008.

Sunday’s cut in borrowing costs came after data from manufacturing to trade trailed estimates last week, adding to concern that the world’s second-largest economy is slowing further. The central bank still has room to ease, the China Securities Journal said in a front-page commentary Monday.

“The People’s Bank of China is likely to roll out further measures on weak growth momentum,” said Yan Yan, a Shanghai-based analyst at China Guangfa Bank Co. “Rate swaps are likely to remain at a low level, but further downside could be limited, given the recent slide.”

The offshore yuan fell 0.06 percent to 6.2127 a dollar as of 4:44 p.m. in Hong Kong, data compiled by Bloomberg show. The currency in Shanghai closed unchanged at 6.2096, according to China Foreign Exchange Trade System prices. The PBOC raised its daily fixing by 0.02 percent to 6.1132, and its gap with the onshore yuan was 1.58 percent, within the 2 percent limit.

Yuan Positive

“The cut is positive news for the currency in the long run, as it signals that the PBOC is proactively supporting the economy,” said Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc in Hong Kong.

China’s exports declined 6.2 percent from a year earlier in yuan terms in April, the customs administration said in Beijing last week. That compared with the median estimate for a 0.9 percent increase in a Bloomberg survey of analysts. Consumer prices rose 1.5 percent, less than the median estimate of 1.6 percent in another survey, and only half the pace the government is targeting for this year. The producer-price index dropped 4.6 percent in a record run of losses.

The overnight repurchase rate, a gauge of funding availability in the interbank market, fell 10 basis points to 1.3 percent, the lowest since December 2010, a weighted average from the National Interbank Funding Center shows. The yield on 10-year sovereign bonds rose one basis point, or 0.01 percentage point, to 3.39 percent, National Interbank Funding Center prices show.

The latest interest-rate cuts aim to lower the funding costs of enterprises, given the increasing downward pressure in the real economy, Hu Yifan, chief economist at Haitong International Securities Group Ltd. in Hong Kong, wrote in a report. Hu expects three to four bank reserve-requirement ratio cuts and one or two interest-rate reductions in the coming months.

— With assistance by Fion Li, Helen Sun, and Tian Chen

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