Market-determined Interest Rate Mechanism to Start Operation
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A new interest rate indicator, entitled the Shanghai Inter-bank Offered Rate (SHIBOR), will come into operation on January 4, the central bank announced in Beijing Wednesday. The mechanism, which will give the central bank real-time market information on interbank interest rates, may become a new benchmark for the money market, said the People's Bank of China (PBoC).
China's current benchmark interest rate, based on the deposit and loan interest rates of financial institutions, is a controlled rate.
Where the previous benchmark rate system was based on buyback and knock-down prices SHIBOR operates on the daily rate for all loans offered by sixteen major banks.
The system is similar to London's LIBOR. It's the most widely used benchmark for short-term interest rates in the international money market.
The central bank said the SHIBOR will consist of eight declaration products with maturities varying from overnight to one-year. Sixteen commercial banks will be included in the price declaration group.
At each trading day prices of the eight declaration products will be announced at www.shibor.org after the prices for all products offered by all institutions have been weighted and averaged, said the PBoC.
China's SHIBOR will provide a benchmark for pricing short-term bonds and derivatives on the money market. It'll be a key indicator of interest rates in the market and inject real-time market information into the monetary control policy.