Shanghai interbank rate launched

The Shanghai interbank offered rate (Shibor) was launched today (January 4) to establish a benchmark interest rate system for China’s money market.

There are eight Shibor rates, with maturities ranging from one day to a year. The fixing is calculated from rates quoted by 16 banks, eliminating the two highest rates and the two lowest, and then averaging the remaining 12.

Deutsche Bank, HSBC and Standard Chartered Bank are the three foreign banks contributing quotes to the Shibor fixing.

Stephen Green, senior economist at Standard Chartered in Shanghai, told RiskNews that Shibor is expected to have a huge impact in the medium and long term. “It is a market interest rate benchmark, so, ultimately, when bank interest rates are liberalised, Shibor will be the benchmark for setting loan rates and interest rates products.

“At the moment, there are lots of interest rates floating around, and if everything goes well, Shibor should establish itself as the standard, but obviously that would take some time,” added Green.

Shibor could also pave the way for interest rate derivatives. “Interest rate derivatives are held back by the fact that there is no benchmark, but once you have a decent benchmark that everyone recognises, that means you can structure a lot more derivatives products and create a more liquid market for these products,” said Green.

Following the launch, HSBC traded the first ever non-deliverable interest rate swap in Chinese renminbi. The bank agreed to receive a fixed rate of 2.90% on a notional RMB100 million over one year against paying three-month Shibor with a financial institution counterparty.