China Swap Rate Climbs as PBOC Suspends Cash Additions

China’s one-year interest-rate swap climbed for a fourth day as the central bank refrained from adding funds to the financial system.

The People’s Bank of China didn’t sell reverse-repurchase or repurchase contracts today, according to a primary dealer required to bid at the auctions. The authority also didn’t inject funds via reverse-repo agreements on Oct. 17, and drained a net 44.5 billion yuan ($7.3 billion) last week.

The one-year swap, the fixed payment to receive the floating seven-day repo rate, rose three basis points, or 0.03 percentage point, to 4.03 percent as of 4:32 p.m. in Shanghai, according to data compiled by Bloomberg. It climbed to 4.04 percent earlier, the highest level since Oct. 9.

“It looks like we’re entering a phase when the PBOC will refrain from selling reverse repos,” said Cheng Qingsheng, an analyst at Evergrowing Bank Co. in Shanghai. “The PBOC is sending a clear signal to the market about its prudent stance.”

The pressure for monetary and credit expansion is still large, as the trade surplus widens and capital flows in, the central bank said in an Oct. 16 statement. There is ample liquidity in the banking system, and monetary policy will continue to be “prudent,” it added.

The PBOC may lean toward tightening should there be an acceleration in consumer-price gains, Song Guoqing, a central bank academic adviser, said over the weekend. Inflation was 3.1 percent in September, official data show.

The yield on the 4.08 percent bonds due August 2023 gained three basis points to 4.15 percent, the highest since Sept. 12, according to data from the Interbank Funding Center.

The seven-day repurchase rate, a gauge of funding availability in the banking system, rose one basis point to 3.58 percent, according to a weighted average compiled by the National Interbank Funding Center.

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