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.
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