China regulators probe liquidity stress that sent rates to record 50%: sources

CHINA’S financial regulators are investigating a month-end liquidity crunch that saw short-term money rates surge to as much as 50 per cent, asking some institutions to explain why they borrowed at extremely high rates, three sources said.

The overnight rate for pledged repo – a short-term financing business – hit a record high of 50 per cent on Oct 31, as a month-end scramble for cash and a flood of government bond sales caused stress in money markets.

The China Foreign Exchange Trade System (CFETS), a central bank affiliate that operates China’s interbank market, has asked institutions that settled trades on Tuesday (Oct 31) at the 50 per cent rate to submit explanations, according two sources with direct knowledge.

“Anyone who borrowed money at very high rates need to explain to regulators the decision-making and bidding process,” said another direct source. REUTERS