China’s tight liquidity to continue until mid-July: experts

June 26, 2013 Leave a comment

China’s tight liquidity to continue until mid-July: experts

Staff Reporter

2013-06-25

The Shanghai Interbank Offered Rate, or Shibor, had a drastic downward correction on the last trading session last week after a sudden surge on June 20, but the persistent tight liquidity conditions in China’s financial sector showed no signs of reversing, with the overnight rate still standing at a comparatively high level of above 8%, reports the Shanghai-based National Business Daily. The current situation regarding a shortage of funds is expected to continue throughout the rest of June, and may extend to mid-July, the paper said, citing banking executives. The overnight rate surged between June 7 to June 20 amid tightening liquidity, boosted by the delivery of fiscal deposits, income tax payments, and a drop in incremental foreign exchange deposits. The Shibor hit new highs on June 20, with the overnight rate surging 578.4 basis points to 13.444%, a record high, and the seven-day Shibor rising 292 basis points to 11.004%. On June 21, the overnight Shibor fell 495.2 basis points to 8.492%, and seven-day Shibor dropped 246.1 basis points to 8.543%. But 14-day and one-month Shibor continued to rise, adding 97.2 and 29.9 basis points, respectively, to 8.566% and 9.698%, the paper said. Zhang Chenhui, director of Financial Institute of Development Research Center under the State Council, said that liquidity should remain tight for about one more month, unless the People’s Bank of China, the nation’s central bank, moves to ease liquidity. International rating agency Fitch Group said last Friday that the Shibor rates are facing upward pressure for the rest of the month as more than 1.5 trillion yuan (US$244 billion) of yuan-designated wealth management products will expire during the period. UBS Securities also expects the fund shortage to last until mid-July, citing five main factors: the country’s five major banks paying fiscal bonuses of 240 billion yuan (US$39 billion), a net redemption of wealth management products or related financing pressure, the comparatively high leverage payments by financial institutions, the delivery of banking reserves of around 800 billion yuan (US$130 billion) in early July, and the delivery of fiscal deposits worth around 450 billion yuan (US$73 billion) in mid-July as well.

Filed under Macro Trends

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