According to an article published today in the Wall Street Journal:A surge in Chinese interest rates is creating a disconcerting flashback to June's cash crunch. This time, it's less a sign of financial stress than comfort that China's economy has stabilized for now.
In trading Thursday, China's benchmark, seven-day repurchase rate jumped to 4.77% from 4.05%. That is its highest level in three months, although the rate is well below the stratospheric 25% hit during the depths of June's rough patch.
The reason for the rise now: China's central bank stopped providing liquidity to the interbank market last week.
A similar lack of activity by the central bank triggered the June swoon, which spread throughout the banking system.
This time around, the economy is on firmer footing and the central bank is unlikely to want a repeat period of turmoil in the weeks leading up to an important Communist Party meeting slated for November.
The preliminary HSBC Markit purchasing managers index out Thursday hit 50.9, indicating another month of solid, if unspectacular growth. The report confirmed recent good numbers on electricity production and auto sales, which rose nearly 20% in September from a year earlier.
The central bank's move to withdraw liquidity is both a sign of confidence in growth and worry about prices.
