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China’s Shibor hit 7-week high as PBOC drains funds for a second consecutive day

Yuan borrowing costs in Shanghai rose to a seven-week high as the People's Bank of China (PBoC) drained funds from the financial system for the second day in a row. One-month Shanghai Interbank Offered Rate climbed to 2.74 percent, the highest since Aug. 4, according to the National Interbank Funding Center.

The PBoC drained a net 95.1 billion yuan ($14.3 billion) from the financial system on Tuesday, following a 245 billion yuan withdrawal on Monday which was the biggest in six months.

The four-week Shibor is extending advances for the 10th consecutive day, the longest run of increases since June. The upcoming week-long holiday in China on account of "National Day Golden Week" which begins around 1 October is adding to upside pressure on money-market rates.

“Liquidity is tight. The PBOC doesn’t want to loosen any further amid signs economic growth is stabilizing, so its policies are tilted toward controlling runaway use of leverage and financial risks,” said Li Haitao, head of fixed-income trading at Huafu Securities Co.

Data released earlier on Tuesday showed that China’s industrial profits spiked 19.5 percent y/y in Aug compared to 11 percent rise in the previous month. Strong industrial profits adding to evidence of continued stabilization in China's economy.

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