China rate swap declines for third day as PBOC halts bill sales

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SINGAPORE: The cost of locking in China’s interest rates fell for a third day, the longest run of declines in a month, as the central bank refrained from selling bills amid the worst cash crunch in at least a decade.

The People’s Bank of China (PBOC) sold three-month bills on May 9 for the first time since 2011 and has held twice-weekly auctions of the securities in all but one of the last six weeks.

It won’t sell bills or conduct open-market operations today, according to traders at primary dealers required to bid at the auctions.

The rates banks charge one another for loans surged to record highs last week and subsequently declined as policy makers injected funds to selected lenders.

“The previous high rates were not sustainable as the central bank won’t let the system fail,” said Ju Wang, a strategist at HSBC Holdings Plc in Hong Kong.

“But the downside is also limited as banks still continue to struggle.

“The improvement will only be gradual.”

The central bank shouldn’t ignore the risk of a crisis arising from the recent cash squeeze, according to a commentary posted on China Securities Journal’s front page yesterday.

At least five companies canceled or delayed scheduled bond sales totaling some 32.1 billion yuan (US$5.2 billion), according to statements posted online a day earlier.

The central bank said in a statement on June 23, after the monetary policy committee’s second-quarter meeting in Beijing, that the nation should ‘appropriately fine-tune’ its policies. — Bloomberg