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Yesterday's Huge Chinese Interest Rate Spike Has People Freaked Out

• Business Insider

The overnight Shibor, or the Shanghai interbank offered rate, surged to 8.29% on June 7, from 5.98% on June 6. The seven-day Shibor rose to 6.66%, from 5.14%.

This is an interest rate used among banks, and it's considered a useful proxy for liquidity in the Chinese credit markets.

What could have caused the spike in Shibor?

First, Demand for cash rises ahead of Chinese holidays like the Dragon-boat festival, New Year holiday, Golden week holiday.

Second, Bank of America's Ting Lu doesn't think this doesn't suggest major problems with the financial system. "In our view, most likely the PBoC failed to anticipate and then failed to respond swiftly to a sudden fall of liquidity supply and seasonal rise of liquidity demand," he writes.

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