China's central bank continued to test the resilience of local lenders to withstand a cash crunch on Thursday, as money market rates soared once again and short-term rates hit record highs.
The seven-day repo rate, which is seen as gauge of confidence to lend in the interbank market, rose to a record high above 10 percent. China's overnight repo rate jumped to as high as 30 percent, analysts said.
Chinese money markets have suffered a severe liquidity strain in the past week, due to seasonal factors and a sharp slowdown in foreign exchange inflows, raising concerns about the financial risks facing the world's second largest economy.
But to the surprise of many market participants, the central bank has held back from pumping cash into the market to ease the credit squeeze and analysts said a spike in the rates at which banks lend money to each other was also a concern.
"SHIBOR (Shanghai Interbank Offered Rate) at 25 percent basically means there is no functioning in the interbank market in China," Patrick Chovanec, chief strategist at Silvercrest Asset Management in New York, tweeted.
"It's like money markets seizing up post-Lehman," he added, referring to the bankruptcy of U.S. investment bank Lehman Brothers in 2008.
Analysts say one explanation for the lack of intervention by the People's Bank of China (PBOC), the central bank, is that it wants to see how lenders operate under tight liquidity conditions.