China Cash Crunch: 1-Day Interest Rate Spikes to Record High 25%

The clampdown on China's shadow banking continues today, with Money Rates at Record Highs as PBOC Lets Cash Crunch Build

China’s benchmark money-market rates climbed to records as the central bank refrained from using reverse-repurchase agreements to address a cash crunch in the world’s second-biggest economy.

The seven-day repurchase rate, which measures interbank funding availability, rose 270 basis points, or 2.70 percentage points, to 10.77 percent in Shanghai, according to a daily fixing announced by the National Interbank Funding Center. That was the highest in data going back to March 2003. The one-day rate rose by an unprecedented 527 basis points to an all-time high of 12.85 percent, a separate fixing showed. An intra-day gauge of the one-day rate touched a record 25 percent.

Deposit Auction

Banks paid 6.5 percent for 40 billion yuan of six-month deposits from the Finance Ministry at an auction today, the highest rate since March 2012 and up from 4.8 percent at the previous sale on May 23.

The yield on one-year government bonds surged 56 basis points to 4 percent, according to the National Interbank Funding Center. That’s the highest level on record for a benchmark note of that maturity.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, rose 46 basis points to 4.95 percent as of 1:07 p.m. in Shanghai, according to data compiled by Bloomberg. It jumped a record 51 basis points yesterday and touched an all-time high of 4.99 percent today.

Shadow Banking Clampdown

Charlene Chu, head of Fitch's China financial institutions estimated China’s total credit, including off-balance-sheet loans, swelled to 198 percent of GDP in 2012 from 125 percent four years earlier. That percentage exceeded ratios preceding banking crises in Japan and South Korea.

It appears as if China is finally serious about its shadow banking problem (and that's a good thing ) yet it's far too late to prevent an economic implosion.

For more on the huge impending slowdown in China please see

• Pettis on China, Europe, Japan: Bad News for Those Looking for Growth
• Epic Glut of Graduates Depresses Wages; Fake Job Offers Taint Hiring Statistics
• Cash Squeeze in China, Interest Rate Swaps Rise Most in 22 Months; China's Credit Bubble About to Pop; Shadow Banking Crackdown

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com