July 14 (Reuters) – Chinese regulators have issued guidance to some banks barring them from conducting bill re-discount operations at rates below 0.5%, sources said on Tuesday, as regulators move to rein in aggressive bill buying amid weak loan demand.
The guidance came after bill re-discount rates plunged in recent months as banks — struggling to find willing borrowers in a sluggish economy — turned to the bill market to meet lending quotas and park excess liquidity. Traders have said rates as low as 0.01% were not uncommon at month-end.
One of the sources said the tighter oversight was triggered by bill rates falling too fast and too low when banks rushed to buy bills in bulk, undermining regulators’ efforts to guide market expectations.
Another source said regulators may be concerned that sharp swings in bill rates were being used by the market to speculate on the state of credit growth.
All sources declined to be named as they were not authorised to speak to media.
The Shanghai Commercial Paper Exchange did not immediately respond to a request for comment.
Reuters reported last month that China’s central bank instructed some commercial banks to increase their lending, a sign that demand for credit remains weak.
China’s new bank lending rose less than expected in May after contracting the previous month, as a prolonged property downturn continued to weigh on household borrowing.
(Reporting by Reuters staff; Editing by Christian Schmollinger and Kevin Buckland)
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