China Swap Rate Rises as PBOC Expresses Credit Growth Concern

China’s one-year interest-rate swaps rose for the first time in three days after the central bank expressed concern over credit expansion.

The People’s Bank of China warned that credit and money supply have increased rapidly and indicated it will refrain from broader monetary easing to support growth, according to its Aug. 1 quarterly policy statement. “It’s inappropriate to rely on aggressive expansion of credit to solve structural problems,” the report said, adding that targeted monetary policies such as selective cuts in banks’ reserve ratios will undermine the role of markets in the long run.

The cost of one-year swaps, the fixed payment needed to receive the floating seven-day repurchase rate, climbed one basis point, or 0.01 percentage point, to 3.78 percent as of 4:10 p.m. in Shanghai, according to data compiled by Bloomberg. The rate climbed by a total of 35 basis points in June and July, after sliding for five months in a row.

“It’s very likely the PBOC will slow the pace of monetary easing in the future,” Xu Gao, chief economist at Everbright Securities Co. in Beijing, wrote in a research note yesterday. “Although the central bank has done some targeted easing in the second quarter under pressure to stabilize growth, the remarks in this report seem to contain more elements of concern.”

The seven-day repo rate, a gauge of interbank funding availability, fell nine basis points to 3.81 percent, a weighted average from the National Interbank Funding Center shows.

China’s gross domestic product growth is expected to be 7.4 percent in the second half, and consumer prices are likely to rise 2.5 percent, according to a report from the State Information Center published in the China Securities Journal today. The “mini-stimulus” should be left in place and monetary policy fine-tuned toward neutral to moderately loose, it said.

The yield on the government’s 4 percent bonds due June 2024 declined two basis points to 4.27 percent, according to data from the National Interbank Funding Center.

— With assistance by Helen Sun

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