China’s Overnight Rate Slides Most in Five Months as Swaps Climb

China’s overnight money-market rate dropped the most in five months amid speculation policy makers will keep borrowing costs low to support the economy.

The overnight repurchase rate, a gauge of interbank funding availability, fell 24 basis points to 2.85 percent, according to a daily fixing from the National Interbank Funding Center released at 11 a.m. in Shanghai. That was the biggest drop since March 21 and the lowest level since June 23. The seven-day rate increased one basis point from a two-month low of 3.30 percent.

“The market is expecting monetary policy to be kept loose,” said Eugene Leow, Singapore-based fixed-income strategist at DBS Bank Ltd. “Beyond the short term, however, a pickup in growth implies higher inflation and higher interest rates.”

Monetary policy is likely to tilt toward easing in the second half, according to a joint report produced by the National Development and Reform Commission’s State Information Center, China Development Bank and the Shanghai Securities News that was published in the newspaper today. Manufacturing is forecast to expand in August for a third month, based on the median estimate of economists surveyed by Bloomberg before a preliminary Purchasing Managers Index due tomorrow.

The Ministry of Finance sold 28 billion yuan ($4.6 billion) of 10-year bonds at a yield of 4.23 percent today, higher than the median estimate of 4.2 percent in a Bloomberg Survey. The yield on the government’s 4 percent notes due June 2024 added three basis points to 4.29 percent, according to data from the National Interbank Funding Center.

Swaps Rise

One-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, gained three basis points, or 0.03 percentage point, to 3.69 percent as of 5 p.m. in Shanghai, data compiled by Bloomberg show.

Liquidity conditions may tighten next week when around eight companies plan initial public offerings, sales that are expected to attracted more than 300 billion yuan of subscriptions, according to Zhou Hao, Shanghai-based economist at Australia & New Zealand Banking Group Ltd.

The People’s Bank of China gauged demand for 14-day and 28-day repurchase contracts tomorrow, according to a trader at a primary dealer required to bid at the auctions. It also asked banks to submit orders for 14-day reverse repo agreements and 91-day bills this morning, the trader said.

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