China money rates jump as high as 50% amid signs of liquidity stress

China’s short-term money rates jumped to as high as 50 per cent on Tuesday (Oct 31), signifying liquidity stress as financial institutions scrambled for cash at the end of October.

In addition to seasonal factors, the cash shortage was caused by an upcoming flood of government bond issuance, and traders also pointed to market fears of default by cash-strapped institutions.

Overnight repo rates in the interbank market surged to as much as 50 per cent, according to data on the China Central Depository & Clearing website.

Two-day rates jumped to as high as 30 per cent, and the highest rate for seven-day repos was 12 per cent.

“The liquidity tightness caught me off the guard, the price suddenly shot up,” said a trader at a brokerage.

Several traders at small lenders were still seeking to borrow money in later afternoon trading when contacted. Some also expressed concern over default in the market, without giving details.

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“Liquidity is extremely tight today,” Caitong Securities wrote in a note to clients.

The brokerage attributed the cash shortage to a “record supply” of government bonds, as well as restricted channels for banks to expand their liability.

China last week approved 1 trillion yuan (S$187.5 billion) of sovereign bond sales to stimulate economic growth, while local governments are rushing to issue refinancing bonds to repay existing debts.

“We expect tight liquidity to force authorities to speed up the rollout of monetary easing measures,” Caitong analysts wrote. REUTERS