It seems liquidity crunches are now d China. Following yesterday’s gloomy GDP print, with it’s clear hints at further slowing ahead, overnight repo broke through May highs:
And the PBOC pounced:
China’s central bank said it has offered funds to the nation’s large lenders on Monday in a bid to satisfy soaring cash demand ahead of the Lunar New Year holiday, showing an unusually accommodative stance that aims to prevent a nervous money market from suffering yet another severe liquidity crisis.
…The PBOC said it will inject further liquidity into the system via reverse purchase agreements, a form of short-term loans to banks, when it conducts its twice-a-week open market operation on Tuesday.
…Over the past year, there have been severe liquidity crunches in June, October and December as the central bank has maintained a largely unsympathetic approach to banks’ cry for cash because of its push to weed out risky lending.In all three instances, it has refrained from offering a lifeline to cash-deprived lenders until the very last minute when the situation threatened to get out of control.
The central bank’s tough and indifferent policy stance on those occasions suggested a strong resolve to reduce the economy’s unhealthy dependence on easy credit and punish wayward banks heavily engaged risky financing behavior, analysts said.
Goodo. But it has more work to do. Here’s December lending, with shadow banking almost back to its proportionate highs:
More tightening to come!
