China's interbank rates swing back to high level

SHANGHAI - Borrowing costs between Chinese banks soared Wednesday after a brief retreat from high levels, suggesting the market remains concerned of a liquidity shortage.

Shanghai Interbank Offered Rate (SHIBOR) overnight rate surged 216.9 base points to 7.66 percent, reversing from downwards in the last two days. The SHIBOR overnight rate hit a record high at 9.58 percent last week before plunging to 4.81 percent on Monday.

Fixing Repo 7-day, another gauge of interbank interest, gained 143 base points to 8.07 percent.

The money shortage even caused a delayed closing of interbank trading.

Traders said they had no hope of a cash injection from the People's Bank of China.

Tight liquidity has weighed on the government's bond issuance. The yield of a 10-year bond sold on Wednesday came out higher than market expectations. Last week, the Ministry of Finance failed to sell all of its bonds at an auction, the first time in 23 months.

"If the central bank does not pump in some funding, current tight liquidity is very hard to be changed, and the money market rates will stay high," said a research note of Southwest Securities.

The central bank drained 2 billion yuan from the money market Tuesday despite calls for easing liquidity, a move interpreted as regulators' commitment to rein in credit surge.

Zhu Haibin, chief China economist at J.P. Morgan, said the money policy is unlikely to be eased in the near future as the fast-growing money supply in the first quarter may have a lagged impact on the economy.