China Swaps Rise This Week as GDP Goal Weakens Case for EasingFion Li
China’s interest-rate swaps posted the biggest weekly increase in three months as the government lowered its economic growth target, lessening the need for monetary easing.
The government will maintain prudent monetary policy, Premier Li Keqiang said at the annual legislature meeting in Beijing Thursday as the 2015 expansion target was set at 7 percent, the lowest in more than 15 years. The central bank cut borrowing costs last week for the second time in three months to spur growth. Li also raised the budget-deficit projection to 2.3 percent of gross domestic product from 2.1 percent.
“A lower expansion target suggests the government will no longer pursue high growth through monetary stimulus,” said Li Miaoxian, Beijing-based analyst at Bocom International Holdings Co. “Given the significant fiscal loosening, market rates are facing upward pressure if the government isn’t willing to ease monetary policy aggressively.”
One-year swaps, the fixed payment to receive the floating seven-day repurchase rate, climbed 23 basis points this week to 3.61 percent as of 4:22 p.m. in Shanghai, data compiled by Bloomberg show. That was the biggest advance since the five days through Dec. 5. The contracts were unchanged Friday.
The People’s Bank of China drained a net 145 billion yuan ($23.1 billion) from the banking system this week after withdrawing 142 billion yuan the previous week.
Government bonds fell. The 10-year yield rose 12 basis points, or 0.12 percentage point, from Feb. 27 to 3.5 percent, the biggest increase of 2015.
The seven-day repo rate, a gauge of interbank funding availability, advanced three basis points to 4.77 percent on Friday, according to a weighted average from the National Interbank Funding Center. It declined five basis points this week, ending a seven-week run of gains.