Key facts
- Chinese regulators have instructed some banks to set a floor of 0.5% for bill re-discount rates.
- The move is intended to curb aggressive bill buying by banks facing weak loan demand.
- Bill re-discount rates had fallen significantly in recent months, with some as low as 0.01% reported.
- Regulators are concerned about market speculation on credit growth due to sharp fluctuations in bill rates.
Chinese regulators have instructed some banks to cease conducting bill re-discount operations at rates below 0.5%, according to sources. This directive aims to curb aggressive bill buying by financial institutions struggling with weak loan demand and excess liquidity in a sluggish economy.
The guidance was issued after bill re-discount rates plummeted in recent months. Banks, finding it difficult to secure borrowers, turned to the bill market to meet lending quotas and manage surplus funds. Traders have reported instances of rates as low as 0.01% at month-end.