China’s money market rates are at their highest levels since 2015’s yuan devaluation

Photo: Mohd Rasfan/AFP/Getty Images

Chinese money market rates are moving higher yet again in Shanghai trade today, as the upward climb of the official money market rate — SHIBOR — continues.

SHIBOR is the benchmark overnight interest rate used in lending activities between Chinese banks.

Whether it’s the overnight rate or rates further out the curve to one-year, they have been rising since the election victory of Donald Trump on November 9.

That’s driven the one-week rate to around 2.5% – the highest level since the PBOC caught the market by surprise and devalued the yuan in August 2015.

CHinese 1 week Shibor (Source: Reuters Eikon)

Naturally, some of the pressure being brought to bear on money market rates is likely related to the the recent yuan weakness. And there looks like there is a clear leading relationship between yuan weakness (USD/CNY rises) and one-week SHIBOR.

USDCNY v 1-week Shibor (Reuters Eikon)

So with Reuters reporting Chinese state banks are in the market selling dollars and buying yuan to push USD/CNY lower, perhaps the push higher in Chinese rates is nearing its end.