The Applying Value And Cultivation Of Shibor As Benchmark Interest Rate

The benchmark interest rate is the pricing basis of other interest rates and financial assets. Moreover, the benchmark interest rate is also applied as a regulating measure by the central bank to reach monetary policy goals. Hence, the benchmark interest rate is of wide applicability.In the process of China’s market-oriented interest rate, the objective of this reform is to allocate financial resources effectively. Our financial market has two kinds of interest rate system. One is the regulated deposit rate, the other is the flexible financial market rate, which hindering the development of market-oriented interest rate.In some sense, the benchmark interest rate is the core part of market-oriented interest rate-forming mechanism. It is the inherent requirement of measuring financing cost, investment returns and macro management to build up a widely recognized benchmark interest rate.This paper starts from the construction of benchmark interest rate and with the reference to the classical Interest Rate Determination Theory. Then, we analyze the principle of benchmark interest rate selection in some developed countries and introduce the role and meaning of Shibor. After the theoretical preparation, this paper concludes the benchmark characteristics of Shibor from three aspects and compare its applicability, basic assessment and correlation with two other interest rates-Chibor and Repo rate through applying Granger causality test and impulse response.The result shows that the time series of Shibor within 1 month is stable, which indicates certain applicability. For basic assessment, overnight Shibor, Chibor and Repo rate can Granger cause each other but one standard deviation innovation from Chibor has stronger impact than Shibor. For correlation, it demonstrates that Shibor and two other kinds of interest rates have weak correlation with three macro-economic variables-broad money supply, total consumption amount and deposit amount.In total, Shibor, regarded as a potential benchmark interest rate, has some advantages as well as some weakness. Hence, this paper analyzes the role of Libor and proposes some advice on cultivationg Shibor to ensure its sustainable development and its positive role in financial market, which can lay a solid foundation for our country’s interest rate liberalization.