Sunday, July 26, 2015

2015-06 Relative Interest Rate Trends

Both the short-term state sector and long-term private sector interest rates rose in June.

The Shanghai Interbank Offer Rate (Shibor) ended June at 1.25%, up 22 basis points from May. The trailing average for June is 2.82%.  Not only did June's rate continue May's trend of being less than half the trailing average, but June's gap between actual and trailing average was 156 basis points, the highest in 2015.

The Wenzhou Comprehensive Index ended June at 19.92%, the highest rate since November, 2014.  The rate was 114 basis points higher than May's close.  The trailing average for June is 20.07%, meaning there was a 15 basis point gap between June's actual and the trailing average.  This is the smallest gap for 2015.

The Wenzhou Comprehensive Index still shows an inverted yield curve.  In June, he rate for one-month lending was 18.13%, but the rate for one-year lending was 15.45%.

On June 28, the People's Bank of China decreased reserve requirement, benchmark lending, and benchmark deposit rates.  The benchmark lending rate decreased from 5.10% to 4.85%.  The benchmark deposit rate for one-year time deposits decreased from 2.25% to 2.00%.  All other maturities were also decreased by 25 basis points.

Three concerning trends continued in June.  First, although both the Shibor and Wenzhou Comprehensive rates increase, the cost of financing for the private sector increased more than the state-sector.  Second, the private sector yield curve continues to be inverted, indicating the private economy is in a recession.  Third, the central bank continues its irresponsible policy of monetary easing.