China lending rates swing as central bank injects cash into financial system

Listen to this article

00:00
00:00

Lending rates in China swung on Wednesday after the country’s central bank pumped the most cash into the financial system in almost four months.

Authorities are facing the tricky task of increasing regulatory scrutiny of risky financial instruments without spooking investors.

The cost of short-term lending in China has risen to two-year highs in recent days, following reports that President Xi Jinping had called for concrete efforts to maintain financial security. This comes amid a broader regulatory crack down on wealth management products and certificates of deposit – popular, high-yielding instruments that are notoriously risky but underpin trillions of renminbi in trade in China’s interbank market.

In a bid to tame rising lending rates, the People’s Bank of China injected Rmb140bn ($20.3bn) via its regular open market operations on Wednesday morning, marking the biggest one-day addition of funds since January 19.

For a while, this looked to have a calming effect, with China’s interbank 7-day repo rate looking on track to decline for a second straight day. But the rate has since risen by 18.5 basis points to 3.1796 per cent, and close to its highest level in two years.

Similarly, the Shanghai interbank overnight lending rate (Shibor) hit 2.9 per cent today, its highest level since early April 2015.

The yield on the Chinese government 1-year bond jumped 11.5 basis points – the most since January 4 – to 3.191 per cent, also the highest level in 25 months. Yields move inversely to price.

In an effort to deal with tightened liquidity, the PBoC had injected Rmb134bn into the financial system in the three weeks to April 24, according to analysts at Natixis, who warned last week that the central bank “will need to inject large amounts not to see a further spike in Shibor”.

China’s Shanghai Composite finished Wednesday’s session 0.3 per cent lower, while the renminbi was sitting 0.1 per cent stronger at 6.8923 per dollar.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.