PBOC Rate-Cut Pause Seen in Swaps as China Faces Inflation Risk

Money-market traders are betting China’s central bank has little room to cut interest rates further, as four reductions in seven months raise inflation risks.

The cost to lock in the seven-day repurchase rate for one year has climbed nine basis points in the past two weeks and is now 55 basis points higher than the benchmark deposit rate. A drop in that spread to negative territory flagged rate cuts in November and May. Consumer prices will approach 2 percent by the end of this year, from 1.4 percent in June, say Guotai Junan Securities Co. and Haitong Securities Co.