From the SMH:
China’s liquidity squeeze is a bit in focus today, after the 7-day repo hit 9.8 per cent late yesterday afternoon, the highest since June’s “cash crunch”.
But reports are out that the People’s Bank of China added funds to selected banks to calm money markets.
The People’s Bank of China said on its microblog it conducted short-term liquidity operations recently and will continue to supply funds to qualified financial institutions in this way based on the situation. It also extended the trading hour of the inter-bank market by 30 minutes yesterday afternoon, indicating that the situation was abnormal.
Online financial news provider Netease reported the monetary authority injected 200 billion yuan ($US32.9 billion).
The central bank intends to calm down market fears as the 7-day repo was close to double digit again, says ANZ China chief economist Liu Li-Gang:
- On the other hand, the central bank appears to understand that the market might be faced with some unusual conditions. We believe the central bank’s intervention is necessary and timely.
- Although the PBoC has attempted to act decisively yesterday, in our view, there is a need for the central bank to review its current monetary stance in order to meet the liquidity requirement towards the year end.
- While the SLO could be considered a tool to tackle the emergency needs of individual banks, the PBOC can start to conduct reverse repo again in order to lower the market interest rate
- Furthermore, the PBoC can also follow its practice in June by issuing an official statement in order to restore market confidence if needed.
