China Money Rate Drops as Brighter Yuan Prospects Deter Outflows

China’s benchmark money-market rate touched a one-year low amid speculation a brightening outlook for the yuan is curbing capital outflows as monetary policy eases.

Analysts raised yuan forecasts in April for the first time since September as Premier Li Keqiang spoke out against devaluation in a Financial Times interview. China cut banks’ reserve-requirement ratios by the most since 2008 in April, after a gauge of capital flows fell in three of the four previous months. Data this week are expected to show the trade surplus rebounded to $40 billion last month from a one-year low of $3.1 billion in March, a Bloomberg survey shows.

“There is a foundation for looser monetary conditions now,” said Cici Wang, a fixed-income analyst at Citic Securities Co. in Beijing. “There was the RRR cut and it’s also possible that yuan positions improved in April” as the trade surplus probably widened and hot money outflows may have slowed amid fading expectations for yuan depreciation, she said.

The seven-day repo rate, a gauge of funding availability in the interbank market, fell as much as nine basis points to 2.29 percent, the lowest since March 2014, a weighted average from the National Interbank Funding Center shows. It was 2.36 percent as of 4:52 p.m. in Shanghai.

The yuan strengthened 0.05 percent to close at 6.2062 a dollar in Shanghai, China Foreign Exchange Trade System prices show. Two state-owned banks sold a “moderate amount” of dollars in the afternoon session and bolstered the yuan, according to three traders who asked not to be named as they are not authorized to comment on the foreign-exchange market. In Hong Kong’s offshore market, the currency rose 0.06 percent to 6.2096, according to data compiled by Bloomberg.

Swaps, Bonds

Analysts predict the onshore yuan will end the year at 6.20 a dollar, based on the median forecast in a Bloomberg survey. That compares with a projection of 6.23 at the end of March. Yuan positions at Chinese financial institutions, a barometer of fund flows, fell by the most since 2007 in March.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, rose two basis points, or 0.02 percentage point, to 2.53 percent, data compiled by Bloomberg show. Sovereign bonds due April 2025 declined for a second day, with the yield climbing four basis points to 3.43 percent.

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