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1. One-week interbank rate breaks 4%, interest hike expectations grow
The overnight Shanghai Interbank Offering Rate rose to 3.6892 percent, and the one-week Shibor broke 4 percent, rising 64.8 basis points to 4.479 percent.
Rising yields on Chinese government bonds, new stock offerings and the issuing of 5.5 billion yuan of convertible debt by state-owned power giant Guodian Power Development Co. pushed up interest rates on Thursday and Friday.
The overnight Shanghai Interbank Offering Rate rose to 3.6892 percent, and the one-week Shibor broke 4 percent, rising 64.8 basis points to 4.479 percent. The jumps marked a sharp jump in the rates, which had showed modest growth over the last two weeks.
"The current capital market equilibrium is a fragile one," said Sheng Hongqing, chief macroeconomic analyst at China Everbright Bank. "It could easily be broken.
In the wake of the historically high statutory reserve rate, the interbank lending markets are in a fragile equilibrium guided by the central bank. Any bad news could easily shock them.
"Even if the central bank sells bonds instead of increasing the required reserve ratio, once the scale of its sales exceeds 50 billion yuan, market expectations of a tightened capital market will intensify," Hong said.
In that case, rates might return to their June and July highs of 6 to 9 percent, he added.
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