China Central Bank Hits At Shadow Banking by Limiting Liquidity

China’s central bank faced down the country’s cash-hungry banks on Friday, letting interest rates again spike to extraordinary levels as it increases the pressure on the banks to rein in rampant informal lending and speculative trading.

The banks have been using cheap official funds to finance the vast “shadow banking” market, which Beijing worries is siphoning credit from industry and creating asset-price bubbles.

The People’s Bank of China (PBOC) has tried to put an end to this over the past three weeks, declining to inject significant funds into the money markets even as the interest rate for some banks to borrow short-term funds has soared to 25 percent or higher.

“They are trying to take a different approach to rein in shadow banking activity,” Charlene Chu, senior director at Fitch Ratings, told reporters on the sidelines of a conference in Sydney.

via Reuters

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza