Overnight SHIBOR Rises to Two Year High, Central Bank Seeks to Preserve Liquidity for Real Economy

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Rates on China’s money markets continue to rise in the lead up the end of the second half, and the maturation of 200 billion yuan in medium-term lending facilities.

On 16 June the overnight Shanghai Interbank Offered Rate (SHIBOR) rose 0.211 percentage points to 2.8528%, hitting its highest level since April 2015.

The 7-day SHIBOR hit 2.9140% for a gain of 0.0093 percentage points, while the other medium and long-term rates saw overall increases.

On the same day the People’s Bank of China announced net cash injections of 43 billion yuan via 7 day, 14 day and 28 day repo operations that offset the maturation of 40 billion yuan in repos and 207 billion yuan in MLF.

Net injections via open market operations reached 410 billion yuan in the second week of June – their highest level in five months.

A report recently released by Huachuang Securities said that the Chinese central bank would maintain funds stability until the end of the quarter, and would not follow any open market rate hikes in the US.

It nonetheless sees continuing pressure to adjust open market rates in response to cyclical hikes by the Federal Reserve.

Speaking to Caixin Morgan Shidan chief economist Zhang Jun said that regulators are especially focused on potential adverse impacts on the real economy that their ongoing deleveraging process could cause.

The Chinese central bank is using “withdrawing short, releasing long” open operations to shore up liquidity for the real economy while simultaneously advancing deleveraging of the economy.

As consequence short-term liquidity could see some seasonal tightness, yet the overall impact on the real economy won’t be considerable.

 

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