Research Of The Efficiency Of SHIBOR As The Benchmark Interest Rate In China

In 1996, the market-oriented reform of China's interest rate was officially launched. After nearly two decades of reform, China completely lifted its control on interest rate in October 2015. The establishment of the benchmark interest rate is an important task of the interest rate market-oriented reform. Though a series of market-oriented interest rates, including the interbank rate, the bond redemption interest rate and the issuing rate of the Central Bank Bill, have been referred to by supervisory authorities and market players as an important benchmark, they have different defects. Being controlled and closely related to the capital supply and demand in the credit market, the deposit and loan interest rate has been the actual benchmark interest rate in China's financial market. With the continuous progress of the interest rate market-oriented reform and the money policy transformation, it is increasingly imperative to find a new market-oriented benchmark interest rate. Therefore, in October 2006, China Interbank Borrowing Center referred to London Interbank Offered Rate(LIBOR) to launch Shanghai Interbank Offered Rate(SHIBOR). SHIBOR started its official operation on January 4, 2007. It is not only a major candidate for the benchmark interest rate, but also a great hope of the current market. To some extent, SHIBOR promotes the orderly progress of the interest rate market-oriented reform. In turn, the orderly progress of the interest rate market-oriented reform consolidates the benchmark position of SHIBOR in the current market. At present, lots of product pricing in China's financial market is connected with SHIBOR. With a favorable market basis, SHIBOR has become a highly-recognized benchmark interest rate.Concerning the importance of SHIBOR in China's financial market, this paper summarizes the definition of the benchmark interest rate and the empirical research methods to test the validity of the benchmark interest rate by previous scholars. The author comes to the conclusion that the validity of SHIBOR as the benchmark interest rate should be analyzed under the framework of monetary policy transition. First, this paper conducts a comparative analysis of important referential interest rates in China's financial market form the qualitative perspective. Second, from the quantitative perspective, time-series analysis methods, including the VAR model, the VEC model based on co-integration, the Granger causality test and the EGARCH model, and Hilbert space mathematical analysis method are adopted to conduct an empirical study of SHIBOR in terms of its market relevance, pricing basis and stability. Research suggests that SHIBOR has been equipped with preliminary characteristics of the benchmark interest rate, but its defects are not to be ignored. To be specific, SHIBOR have an edge over other major interest rates in the monetary market in terms of market relevance and pricing basis. It is apt to say that SHIBOR can play a role in the channel of interest rate for monetary policy transmission, and can well guide the variations of other major interest rates. Besides, it is much closer to the leading interest space. However, SHIBOR is still incomplete as a benchmark interest rate. For example, its co-movement with some monetary policy variables, capital market variables and macro-economic variables is poor in the channel of interest rate for monetary policy transition; its pricing basis is no match for that of the current deposit benchmark interest rate; and it is not superior to other interest rates in terms of the stability.At last, this paper proceeds from conclusions of this research to put forward corresponding policy suggestions. From the perspective of supervision, the supervisory authorities should enhance their development of SHIBOR as a benchmark interest rate, improve the offering style of SHIBOR, further dredge the channel for monetary policy transmission, and alleviate unreasonable institutional impact on the financial market. From the perspective of market, the commercial banks should increase the correlation of interest rate pricing, products and services with SHIBOR.