A Feasibility Study Of Shibor As The Benchmark Rate Of Inter - Bank Market

The basis rate has the general reference meaning for the monetary market. It is the basis for the financial trading and financial asset pricing, and bears on the overall development of the financial market. In 1993, China starts to carry forward market-based reform of interest. In 1996, the People’s bank of China completely loosed the constraints of interbank rate, lifted the control over the repo rates in 1997. With this, our inter-bank rate was totally out of the government regulation’s control. The inter-bank money market is the principal market for the bond trading and short-term loan. The trends of its rate and the development of the basis rate is an important subject in the rate liberalization process.This paper starts from the theoretical research, and use the data of the inter-bank money market to do the deep analysis on whether Shibor could be the basis rate in the inter-bank money market. In our interest rate system, the deposit rate, CBB(central-bank bill)’s rate, national-debt rate, repo rate and Shibor played an important role in our interest rate system. Our inter-bank money market could be mainly divided into two parts, the bond market and money market, and also the analysis of this part includes two parts. In the bond market, I select many three month and one year bonds, with huge volume and high rating. In order to analyze the bond market, I chose the VECM model to fit the data and on this basis to do the causal analysis. In the money market, in order to analyze the relationship among the basis rates, I selected six variables including the Shibor rate, repo rate, fixing repo rate, moving average repo rate, the shortest national-debt rate and central-bank bills rate into the model. Considering that these variables may have the synchronous effect, I chose the DAG method to add the synchronous effect between the disturbing terms. With this, the above VECM becomes the SVECM model. And on this basis, I used the variance decomposition to perform and detailedly show the relationship among the basis rates. This paper aims to help the money market’s participants to grasp the trends and features of the money rate. And also the results could provide the financial institutions with a benchmark interest rate reference on financial products pricing and interest rate risk management. Meanwhile, I hope the result could provide a theoretical support for the development of the rate system and also the financial product based on these rates.