China Rate Swaps Drop to Five-Month Low After GDP Growth Slows

China’s five-year interest-rate swap declined to a five-month low on speculation the central bank will refrain from tightening monetary policy after growth in the world’s second-biggest economy unexpectedly slowed.

Gross domestic product rose 7.7 percent in the first quarter from a year earlier, the National Bureau of Statistics said in Beijing yesterday. That was lower than the 8 percent median forecast in a Bloomberg News survey of 41 analysts and 7.9 percent in the fourth quarter. Nomura Holdings Inc. said in a report today it no longer expects the central bank to raise interest rates in 2013, while Goldman Sachs Group Inc. said yesterday policy is likely to be kept “relatively loose” due to slower-than-expected growth.

“Weak growth reduces the chance of tightening,” said Frances Cheung, strategist at Credit Agricole CIB in Hong Kong. “The market is still digesting the weak Chinese data released yesterday.”

The five-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, declined three basis points, or 0.03 percentage point, to 3.53 percent in Shanghai, according to data compiled by Bloomberg. It touched 3.50 percent, the lowest level since Nov. 21.

The People’s Bank of China today sold 58 billion yuan ($9.4 billion) of 28-day repurchase contracts that reduce cash in the financial system at a yield of 2.75 percent, it said in a statement.

The seven-day repurchase rate, which measures interbank funding availability, climbed five basis points to 3.03 percent, according to a weighted average compiled by the National Interbank Funding Center.

The yield on the 3.52 percent government bonds due February 2023 dropped seven basis points to 3.36 percent, according to the Interbank Funding Center.

— With assistance by Judy Chen

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