Liquidity Tightens As Interbank Rates Continue to Rise

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Interbank rates continue to rise in China on the back of both seasonal factors and the central bank’s ongoing deleveraging drive.

Interbank lending rates maintained their upwards momentum on 13 June, with the overnight Shibor rising 0.0018 percentage points to 2.8320%, the 7 day Shibor rising 0.0032 percentage points to 2.9%.

CITIC Securities fixed income analyst Ming Ming said to Caixin that the rise in rates was not due to inadequate money supply, but the “irrational structure” of liquidity injections by the Chinese central bank.

While large banks that enjoy high levels of liquidity are positioned to obtain a larger volume of funds from the open market operations, smaller banks of lower standing remain unable to access low cost capital from the central bank, leaving them dependent upon interbank lending and interbank CD’s to ensure the stability of their business.

Huatai Securities analyst Li Chao sees low liquidity risk and little likelihood of systemic financial risk this month, with the People’s Bank of China continuing to adopt a “stable and neutral” monetary policy that it will adjust as appropriate in the case of any untoward events.

PBOC’s decision to pour 498 billion yuan into market by means of medium-term lending facilities on 6 June was interpreted by some observers as flagging a moderation of the ongoing deleveraging drive by China’s financial regulators, and a response to investor concerns about liquidity levels.

On 13 June the Chinese central bank announced that it had made net injections of 50 billion yuan via 7 and 28 day repo operations.

 

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