Interbank rates in China remain twice as high as normal

That's despite easing over the past few days.

PBOC Governor Zhou Xiaochuan said China will ensure there is enough money in the economy for the smooth functioning of its financial markets. Zhou, however, did not directly mention last week’s massive cash shortage that sent interbank rates into double digits and raised fears that the Chinese financial system was on the verge of a meltdown.

“We will use all kinds of tools and methods to appropriately adjust liquidity and to maintain the overall stability of markets,” he said.

Interbank rates still remain nearly twice as high as normal despite easing over the past few days since the central bank pledged to provide direct cash injections to overextended banks.

Analysts believe the tightening of monetary conditions could act as a major extra drag on Chinese growth at a time when the economy is already weakening.

Bankers and investors in China are frustrated by PBOC’s slow response to the surge in interbank rates. They have also criticized its lack of transparency that worsened the feeling of panic. The Chinese stock market plunged by 15% three days after the interest rate spike.