Chinese Interbank Liquidity Collapse Leads To 45% Lending Rate Surge

Following the now extremely well documented surge in short-term SHIBOR and Chinese repo rates, it appears that banks have begun attempting to extract the missing liquidity from end consumers. Various Chinese commercial banks raised lending rates between 10 and 45% over the benchmark rate because of a shortage of funds, the China Securities Journal reported today, citing an unidentified bank official. In the meantime, SHIBOR refuses to pull back, hitting an unsustainable 8.05%, which is worse than Portuguese 10 year rates. Will this sustain? Unclear - the Chinese new year must pass and the recent surge in snowfalls will have to recede before a steady state evaluation can be made, however as we have been warning since December, in a country having one of the biggest asset-liability mismatches, the negative curve convexity on tightening fears, will blow up the near end, isolating bank liquidity. To say that this is bad news if it persists is an understatement.  On the other hand, for the news to matter, news will have to matter period: Bernanke has managed to indoctrinate the Pavlovian Dogs, as described by Grantham yesterday, with a sense that every action, no matter how bad only leads to rewards. Which, itself, is of course also very much unsustainable.

Today's SHIBOR:

From the Chine Securities Journal:

The loan burst at first beginning of this year caused an unprecedented shortage of credit source, some commercial banks began to increase its loan interest currently, a high-ranked banker based in Beijing told China Securities Journal yesterday.
 
The banker said, most commercial banks increased the loan interest for 10percent to 45 percent.
 
Another banker said, the central bank had ordered that the loan granted by one commercial in January should not exceed 12percent of the total quotas in 2011. Actually some banks broke such limit in the first two weeks, thus banks had to constrain the enthusiasms of loan.