China Swaps Snap Eight-Day Gain on Outlook for Further Slowdown

China’s five-year interest-rate swaps dropped, halting an eight-day gain, on speculation the central bank will refrain from curbing money supply as the economy slows.

The People’s Bank of China didn’t conduct any repurchase-agreement operations today, which drain funds from the banking system, according to a trader required to bid at the auctions. Interbank money-market rates have retreated since a cash squeeze in June drove rates to record highs. Official data showed yesterday that second-quarter growth slowed to 7.5 percent from 7.7 percent, prompting Standard Chartered Plc to lower forecasts.

“The expectation is that China’s growth may have a sequential slowdown in the coming quarters so the central bank will unlikely tighten monetary policy,” said Becky Liu, a Hong Kong-based rates strategist at Standard Chartered.

The five-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, declined two basis points to 3.99 percent as of 4:58 p.m. in Shanghai, according to data compiled by Bloomberg.

Standard Chartered reduced its 2013 growth forecast to 7.5 percent from 7.7 percent and the 2014 estimate to 7.2 percent, compared with 7.5 percent. China’s State Council may lay out economic plans for the second half tomorrow, the 21st Century Business Herald reported today, without saying where it got the information.

The one-day repurchase rate, which measures interbank funding availability, dropped 28 basis points, or 0.28 percentage point, to 3.01 percent, according to a weighted average compiled by the National Interbank Funding Center. It reached 3 percent earlier, the lowest level since May 20.

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