Tightening liquidity in the money market during the past few weeks has forced commercial banks to increase the interest rates they offer for wealth management products.
The central bank has allocated a total of 190 billion yuan in reverse repos to commercial banks this week, in a continuing drive to ensure market liquidity.
In these operations the central bank buys bonds from commercial banks giving them more cash on hand, and the banks then agree to buy the bonds back later at a slightly higher rate.
The cash shortage was due to the payment needs of commercial banks as the end of the year's second quarter approaches.
The tightened liquidity in recent weeks has also forced many commercial banks to increase the interest rates of their wealth management products in order to get more cash in hand. Some commercial banks including China Everbright Bank, Minsheng Bank and Citic Bank are now offering wealth management products with interest rates higher than 5 percent, better than the rates offered during the same period last year.
"Increasing wealth management interest rates was also due to a seasonal factor. Some smaller banks are not able to get cash from the central bank and so need to borrow from large banks. The smaller banks need cash, and so they offer these liabilities in order to get it," said Chen Ji, senior analyst of the Bank of Communications.
(CGTN)