China Money Rate Drops as Slow Inflation Seen Spurring Easing

China’s benchmark money-market rate fell to a two-week low as subdued inflation fueled speculation monetary policy will be eased.

Consumer prices increased 1.6 percent in October from a year earlier, matching September’s pace that was the slowest since January 2010, and producer prices fell for a record 32nd month, according to data released yesterday. The disinflation will keep monetary policy accommodative and fiscal policy proactive, Australia & New Zealand Banking Group Ltd. economists Li-Gang Liu and Hao Zhou wrote in a note yesterday.

The seven-day repurchase rate, a gauge of interbank funding availability, dropped two basis points to 3.12 percent as of 4:33 p.m. in Shanghai, a weighted average compiled by the National Interbank Funding Center shows. It fell to 3.03 percent earlier, the lowest since Oct. 28.

“The economy is under pressure to weaken, and inflation will stay low, so at least the expectation for further easing will continue,” said Chen Kang, a Shanghai-based analyst at Shenyin Wanguo Securities Co. “In that case, rates may have further downside.”

The People’s Bank of China provided 500 billion yuan ($82 billion) to lenders in September and another 269.5 billion yuan last month, according to its third-quarter monetary policy report. It also cut reserve-ratio requirements for some banks in the three months through June.

Swaps, Bonds

The PBOC sold 20 billion yuan of 14-day repurchase agreements at 3.4 percent today. The monetary authority has kept open-market operations neutral over the past month.

The one-year interest-rate swap, the fixed payment to receive the floating seven-day repo rate, rose two basis points to 2.96 percent, according to data compiled by Bloomberg. It touched 2.91 percent earlier, the lowest since August 2012.

Government bonds erased an earlier gain to close little changed. The yield on the 4.13 percent notes due September 2024 was steady at 3.55 percent after falling to a 17-month low of 3.45 percent, according to data from the National Interbank Funding Center.

— With assistance by Helen Sun

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