China Rates Surge Despite Central Bank Measures
By NEIL GOUGH
Published: NYT December 23, 2013
HONG KONG — A bid by China’s central bank to curb soaring interest rates and relieve pressure on the financial system appeared to have come up short on Monday, as Chinese money market rates shrugged off the measure and continued to approach the highs seen in June.
The central bank, the People’s Bank of China, said late Friday that it had provided more than 300 billion renminbi, or about $50 billion, in short-term funds to selected banks over a three-day period that week.
Rates continued to surge on Monday, however, in China’s money markets — a key source of short-term funding for commercial banks and also for financial institutions engaged in risky, off-balance-sheet shadow lending.
One key rate, the seven-day repurchase rate, rose as high as 10 percent on Monday. That was double the rate of a week earlier and the highest level since June, when the People’s Bank of China allowed rates to surge in an effort to curb speculative investment in the country’s sprawling shadow banking sector.
China’s banks are scrambling for short-term cash to meet month-, quarter- and year-end regulatory requirements. At the same time, demand for cash is high among Chinese companies seeking to meet year-end payments.
These and other factors have combined to push the costs of short-term borrowing in China up drastically, a situation that if left unchecked, could leave some banks struggling to meet their obligations and could have implications for the broader economy.
As was the case in June, part of the reason for China’s liquidity shortage is that the central bank has been purposely refraining from its regular open-market operations — the buying and selling of money-market instruments to manage liquidity and interest rates.
Analysts see this as a signal that the People’s Bank of China is serious about reining in the shadow banking sector. But to help ordinary banks meet their day-to-day funding needs, the central bank has been resorting to a method that is less commonly used and less transparent.
In a posting on its official account on Sina Weibo, China’s Twitter-like messaging service, the central bank confirmed on Friday that it had sought to ease pressure in money markets by providing assistance through short-term liquidity operations — an exceptional measure to provide funding selectively to large banks, which it did not identify.
The central bank noted that some commercial lenders appeared to be hoarding cash, with excess reserves in the banking system topping 1.5 trillion renminbi, or about $250 billion, a level it described as “relatively high” when compared with the same period in previous years.
“At the same time, we suggest the main commercial banks make rational adjustments to the structure of their assets and liabilities, and improve their liquidity management using a scientific and long-term approach,” the central bank said its statement.
This statement "Analysts see this as a signal that the People’s Bank of China is serious about reining in the shadow banking sector.", and "In a posting on its official account on Sina Weibo, China’s Twitter-like messaging service, the central bank confirmed on Friday that it had sought to ease pressure in money markets by providing assistance through short-term liquidity operations...", are contradictory. Smells like FED '78 - '79. |
