Interbank interest rates this week recorded their biggest increase in several months. The rate increase is much smaller than at this time last year but a key difference is that the People’s Bank cut benchmark rates just a month ago and said that it wanted to reduce financing costs. One reason for the rate surge is that a large volume of funds has been locked up ahead of a wave of IPOs. The usual end-quarter competition for funds is a factor too. A third factor is regulatory changes that are tightening liquidity. The People’s Bank has plenty of room for manoeuvre on paper, with the required reserve ratio (RRR) standing at a high 20%. But any cut to the RRR now would probably be interpreted as a sign of policy easing and send equity markets soaring even higher. That prospect, we suspect, will be giving policymakers second thoughts.
Subscriber content
Read this in full, free
Start a free trial and use one of your 10 free starter credits to unlock this piece.