What Drives China’s Interbank Market?

September 1, 2009

Preview Citation

Format: Chicago

Nathan Porter, and TengTeng Xu. What Drives China’s Interbank Market?, (USA: International Monetary Fund, 2009) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Interest rates in China comprise a mix of both market determined interest rates (interbank rates and bond yields), and regulated interest rates (lending and deposit rates), reflecting China's gradual process of interest rate liberalization. We argue, using a theoretical model and empirical analysis, that the regulation of key retail interest rates diminishes the ability of the market determined rates to act as independent price signals, or as benchmarks for use in asset pricing and monetary policy. Further interest rate liberalization should, therefore, strengthen the information conveyed by movements in interest rates, allowing for the better pricing of risk and capital.

Subject: Deposit rates, Interbank markets, Interbank rates, Liquidity, Reserve requirements

Keywords: Benchmark interest rate, Monetary policy, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/189
Stock No:

WPIEA2009189
ISBN:

9781451873368
ISSN:

1018-5941

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