Chinese regulators have issued guidance to some banks, barring them from conducting bill re-discount operations at rates below 0.5%. This move is part of an effort to rein in aggressive bill buying amid weak loan demand.
Background
In recent months, bill re-discount rates have plummeted as banks struggled to find willing borrowers in a sluggish economy. As a result, banks turned to the bill market to meet lending quotas and park excess liquidity. Traders reported rates as low as 0.01% were not uncommon at month-end.
The tighter oversight was triggered by bill rates falling too fast and too low when banks rushed to buy bills in bulk, undermining regulators’ efforts to guide market expectations. Another source suggested that regulators may be concerned that sharp swings in bill rates were being used by the market to speculate on the state of credit growth.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
