Jump in China Money-Market Rates seen as Strength

China’s brokerages are betting the biggest jump in money-market rates since June’s record cash crunch is a sign of strength in the nation’s economy rather than finance-industry weakness.

The central bank has refrained from injecting funds into the banking system since Oct. 17, driving the benchmark seven-day repurchase rate 138 basis points higher to 4.88 percent last week, the most in four months. Yet the one-year swap contract, the fixed payment needed to lock in the repo rate for 12 months, rose just 11 basis points to 4.08 percent, reflecting expectations for a gradual rise in borrowing costs. That’s well short of a 5.06 percent peak in June, when investors were concerned overstretched banks would default on payments.

This time round, the cash crunch is reflecting economic strength after gross domestic product expanded 7.8 percent in the three months through September, ending a two-quarter slowdown. The odds of a credit crisis are decreasing on expectations a Communist Party summit in November will take steps to scale back local-government debt and shadow banking, a Bloomberg survey indicated.

Bloomberg

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.