Chinese interbank rates, the rate at which banks lend to one another, have been spiking since before the Dragon Day boat festival in early June.
This has people freaked out that China is on the verge of a credit crisis.
Some economists have argued that Chinese policymakers were intentionally punishing certain banks and are willing to stomach some shorter term pain for more stable, longer-term economic growth.
In an interview with CNBC, Jim O’Neill, former chairman of Goldman Sachs Asset Management, said there was never a genuine liquidity crunch in China:
“The notion that there’s a genuine liquidity crunch is crazy. I mean China’s biggest underlying macroeconomic dilemma is that they save too much. If they want to bring rates down to zero, they can do it in five seconds. There’s clearly this element of we’re trying to discourage some people and we want to move on and the only way to do it is to make these guys lose some money. As with every aspect of monetary policy you have to get the balance right.”
O’Neill said he thinks that at least initially, this was a deliberate move on the part of the policymakers.
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