China’s most important gauge of short-term funding costs has risen to a three-year high, illustrating the severity of the government’s monetary tightening and the stress it is placing on businesses.
The country’s seven-day government bond repurchase rate is notoriously volatile and is expected to fall after a month-end cash shortage eases. But in jumping to its highest level since late 2007, this barometer of interbank liquidity has raised fresh questions about the extent to which China’s fight against inflation could undermine economic growth.
The seven-day repurchase, or repo, rate, hit 8.9 per cent on Wednesday, up more than 500 basis points from its average in May. Analysts said regional and municipal banks were being hit hard, because they are net borrowers in the interbank market.