What Drives China's Interbank Market?

31 Pages Posted: 21 Sep 2009

See all articles by Nathan Porter

Nathan Porter

International Monetary Fund (IMF)

TengTeng Xu

International Monetary Fund (IMF)

Date Written: September 2009

Abstract

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.

Keywords: Asset prices, Bank regulations, Banking sector, Bond markets, Capital markets, Central bank policy, China, People's Republic of, Economic models, Interest rates, Interest rates on deposits, Interest rates on loans, Liquidity, Monetary policy, Pricing policy

Suggested Citation

Porter, Nathaniel John and Xu, TengTeng, What Drives China's Interbank Market? (September 2009). IMF Working Paper No. 09/189, Available at SSRN: https://ssrn.com/abstract=1475519

Nathaniel John Porter

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

TengTeng Xu (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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