China's Money Markets Thrown into Chaos as Liquidity Crunch Spikes Rates to 50%
-
Routine month-end cash demand snowballed into chaos in China's money markets on Oct 31, with short-term funding rates spiking as high as 50%.
-
Factors contributing included usual month-end liquidity needs, cash hoarding ahead of a bond sale, and banks reluctant to lend to counter yuan weakness.
-
The PBOC and regulators stepped in to direct lenders, extend trading hours, and calm markets, calling the volatility an "accident."
-
Tighter liquidity aimed at supporting the yuan is leaving the financial system vulnerable to further shocks.
-
Another liquidity crisis is possible as long as capital outflows keep pressure on the currency.