November 29, 2016 / 6:40 AM / in a year

China's SHIBOR interbank rate hits highest in 2 months

SHANGHAI, Nov 29 (Reuters) - Yuan borrowing costs in Shanghai surged to a two-month high on tight liquidity in the market after the central bank pulled funds from the financial system, traders said.

The overnight Shanghai Interbank Offered Rate (SHIBOR) rose to 2.3020 percent on Tuesday, the highest since September 30, when the rate surged to a 17-month high of 2.3270 percent. Before reaching today’s level, the rate had been on an upward trend for 14 consecutive days.

The seven-day rate stood at 2.4810 percent, while the 3-month rate advanced to 3.0172 percent, the highest since mid-February.

“Money conditions were extremely tight,” said a trader at a Chinese bank.

Traders also noted that money supply and demand in the market had remained balanced, but with a tightening bias, for several months. But recent daily fund draining led by the central bank had worsened the situation.

The People’s Bank of China has drained a net of 10 billion yuan ($1.45 billion) on Tuesday, as 190 billion yuan of funds injected through reverse bond repurchase agreements offset matured repos on the same day. It marked the fourth consecutive daily net drain.

Some analysts said they expected the central bank to offer liquidity support through its medium-term lending facility (MLF) to ease pressure on liquidity tightness while ensuring that the total amount of funds in the market is stable. ($1 = 6.8916 Chinese yuan) (Reporting By Winni Zhou and John Ruwitch; Editing by Eric Meijer)

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