China’s Swap Rate Increases as PBOC Clarifies Lending to Banks

Updated on

China’s interest-rate swaps rose for the first time in four days after the central bank shed light on the scale of its lending and opened up the market for certificates of deposit sold by banks.

The People’s Bank of China provided 262.8 billion yuan ($42.4 billion) of loans via its Pledged Supplementary Lending program in the last five months and lowered the cost of these funds gradually to 3.1 percent, from 4.5 percent last year, it said in a statement. A National Business Daily report had put the figure at more than 1 trillion yuan. Outstanding PSL totaled 645.9 billion yuan at the end of May, the central bank said.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, increased six basis points to 2.43 percent at 4:37 p.m. in Shanghai, data compiled by Bloomberg show. The yield on the government bonds due April 2025 rose two basis points to 3.62 percent, according to National Interbank Funding Center Prices.

“The disclosure of the amount indicates it’s still within the 1 trillion yuan quota assigned last year and the reduction of interest rates was in line with the decline in bond yields, so it’s not a sign that the PBOC is guiding interest rates lower,” said Xu Hanfei, a Shanghai-based analyst at Guotai Junan Securities Co. “This is negative news for the bond market.”

Certificates of Deposit

Large-denomination certificates of deposit can from Tuesday be sold by banks at market rates to anyone, having previously been restricted to other lenders, the PBOC said on its website. The minimum size for individual subscribers is 300,000 yuan and that for companies is 10 million yuan.

“The launch of these negotiable certificates of deposit is recognized as one of the last steps toward a complete removal of the cap on deposit interest rates,” analysts led by MK Tang at Goldman Sachs Group Inc. wrote in a note on Tuesday. “It is quite probable that the interest-rate liberalization process will be completed before the end of this year.”

The seven-day repurchase rate, a gauge of interbank funding availability, climbed eight basis points to a three-week high of 2.10 percent, a weighted average from the National Interbank Funding Center shows.

— With assistance by Helen Sun

Before it's here, it's on the Bloomberg Terminal. LEARN MORE