China’s interest rates poised for a quick rise, in response to US moves
Higher Chinese interest rates loom, as the one-year Shanghai Interbank Offered Rate hits a two-year high, perching above the one-year prime loan rate
The interbank funding cost of Chinese banks is quickly approaching, if not exceeding, the interest rate banks charge their clients, creating a distorted view of the financial landscape that could lead to some shrinkage in bank lending or a quick rise of interest rates in the world’s second-biggest economy.
The one-year Shanghai Interbank Offered Rate, based on the interest rates at which banks offer to lend unsecured funds to other banks in the Shanghai wholesale money market, rose above the one-year prime loan rate, namely the interest rate banks charge to their best clients, on Monday and Tuesday.
The Shibor’s 4.3024 reading was its highest in more than two years, and marked the first time the Shibor had exceeded the prime loan rate since the data series became available in 2013.
Money market rates in China have been rising for months, partly in response to the US Federal Reserve’s heading down a path to raise rates and a steady tightening by the People’s Bank of China. Now the rate rise has started to spread; many banks already have cancelled discounted rates for mortgaged loans. On Friday, regulators demanded higher deposit rates from banks competing for their funds.
The reversed gap between funding cost and interest charges will only accelerate the process for Chinese banks to raise interest rates on loans to home buyers, infrastructure projects and industrial enterprises.