(Yicai) Aug. 1 -- The discount interest rate on China’s interbank commercial bills, which is used to measure the cost of interbank liquidity and is regarded as the leading indicator of credit data, tumbled to the lowest so far this year in July, triggering market concerns about weak demand for credit.

Last month, the discount rate of six-month bank bills stayed below 1.5 percent, and even dropped under 1 percent at one point, to eventually close at 1.02 percent on July 28, while the rate for three-month bills finished at 0.90 percent. Both hit a record low this year.

The interbank discount rate for negotiable bills has long been regarded as a leading indicator for the amount of added credit. Usually, when demand for credit is large, banks will sell more commercial bills and this will result in a rise in the discount rate. But when there is little demand for credit, banks will issue fewer bills and the discount rate will drop.

The slump in the rate last month is a reflection of an insufficient issuance of loans, said Wang Yifeng, chief analyst of the financial industry at Everbright Securities. However, it could also be affected by fluctuations in transactions. At the beginning of a new quarter, the credit quota is quite loose and some banks will purchase bills, leading to a sharp decline in the interest rate, he added.

July is usually the month when the interest rate on inter-bank bills is at its lowest, so the July rate is not a good gauge of financial data, said the fixed-income research team at financial information services provider Financial Regulation & Law.

The discount rate of interbank bills is gradually losing its role as an accurate leading indicator of credit data, as the country’s central bank started this year to reduce the operational space for banks to adjust the scale of credit through bill discounting. For instance, the change in discount rates and the amount of newly added credit, which usually correlate, did not do so in June.

At the end of June, the discount rate on semi-annual and three-month interbank bills issued by state-owned and joint-stock commercial banks sank to 1.4 and 1 percent, respectively. But new yuan loans hit a record high in June at CNY3 trillion (USD426.3 billion).

Editor: Kim Taylor