What Drives China’s Interbank Market?

Author/Editor:

Nathan Porter ; TengTeng Xu

Publication Date:

September 1, 2009

Electronic Access:

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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.

Series:

Working Paper No. 09/189

Subject:

Asset prices Bank regulations Banking sector Bond markets Capital markets Central bank policy China Economic models Interest rates Interest rates on deposits Liquidity Monetary policy Pricing policy

English

Publication Date:

September 1, 2009

ISBN/ISSN:

9781451873368/1018-5941

Stock No:

WPIEA2009189

Format:

Paper

Pages:

30

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