China Tightening Update: Shanghai Interbank Rates Surge Even More23 June, 2011, 5:05. Posted by Zarathustra
Tags: Economy, Markets, Shanghai Interbank Offered Rate, SHIBOR
After the latest increase of the reserve requirement ratio came into effect, the short-term interbank lending rates in China continue to surge to a probably unbearably high level, signalling a very tight liquidity condition in China. The overnight rate has surged to 7.5% yesterday, and the one week rate to 8.8%. The cost of funding for one day is now higher than a year as far as the Shanghai Interbank Offered Rates (SHIBOR) are concerned.
The increased tightening in liquidity may be due to the fact that we are coming close to the end of the first half of the year, thus banks are scrambling for funds (we hear similar stories in Hong Kong, in which banks are apparently scrambling for deposits this week by offering higher fixed deposit rates). Because of the liquidity strain, the People’s Bank of China announced that they would stop selling bills to sterilise excess liquidity in the open market operation.
Below are the charts for the Shanghai Interbank Offered Rates. As you can see, it is now more expensive to borrow short-term than long-term.
The short-term rates have been rising significantly in the recent weeks as the PBOC continues to tighten monetary policy and credit.
While the longer end has been rising quite smoothly over the year.
More on China’s Monetary Tightening: