China's Money Market Rout Kicks Off
I have argued since January that Beijing is committed to reining in financial risks this year and that investor complacency about “China risk” would be tested first in the domestic interbank market.
Interbank rates have shot up this week, with the 7-day repo rate at 5.5% yesterday and 5% today, as the PBoC continued to withdraw liquidity for the second month in a row after pumping in a record amount of money in Q4 and January.
This week’s squeeze is especially painful for non-bank financial institutions, including trust, securities and investment firms. Their interbank borrowing, as I have pointed out, has exploded in the past two years.