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26 Jun 2013
PBOC to foster stability of Chinese money-market
FXstreet.com (New York) - China’s central bank recently indicated it would utilize tools to safeguard stability in money markets and tighten liquidity, which set to ease, in essence giving the first official signs of relief for a cash squeeze in the world’s second-largest economy.
PBOC aims at stabilization
The People’s Bank of China (PBOC) has also allotted liquidity to some financial institutions in an effort to stabilize money-market rates and use short-term liquidity operations with the aim of steadying markets, according to a statement released on its website yesterday. Moreover, it also called for an improvement in liquidity management from commercial banks.
It is worth noting that the statement is the first public confirmation of central bank action to ease a crunch that sent China’s overnight repurchase rate to a record last week and came mere hours after Ling Tao, deputy head of the PBOC’s Shanghai branch, reiterated liquidity risks were controllable.
Premier Li Keqiang is seeking to wring speculative lending out of the nation’s banking system after credit expansion outpaced economic growth. “The message is clear: the central bank doesn’t want to see a tsunami in China’s financial markets, and market rates will drop further,” noted Xu Gao, Everbright Securities Co.’s Beijing-based chief economist. The PBOC is giving the market “a pill to soothe the nerves,” he added.
Liquidity in short supply
As such, “With the elimination of seasonal and emotional factors, interest-rate fluctuations and the tight liquidity situation will gradually ease,” said the central bank, which attributed the increase in borrowing costs to a rapid increase in lending, cash demand during a holiday earlier this month and changes in foreign-exchange markets.
PBOC aims at stabilization
The People’s Bank of China (PBOC) has also allotted liquidity to some financial institutions in an effort to stabilize money-market rates and use short-term liquidity operations with the aim of steadying markets, according to a statement released on its website yesterday. Moreover, it also called for an improvement in liquidity management from commercial banks.
It is worth noting that the statement is the first public confirmation of central bank action to ease a crunch that sent China’s overnight repurchase rate to a record last week and came mere hours after Ling Tao, deputy head of the PBOC’s Shanghai branch, reiterated liquidity risks were controllable.
Premier Li Keqiang is seeking to wring speculative lending out of the nation’s banking system after credit expansion outpaced economic growth. “The message is clear: the central bank doesn’t want to see a tsunami in China’s financial markets, and market rates will drop further,” noted Xu Gao, Everbright Securities Co.’s Beijing-based chief economist. The PBOC is giving the market “a pill to soothe the nerves,” he added.
Liquidity in short supply
As such, “With the elimination of seasonal and emotional factors, interest-rate fluctuations and the tight liquidity situation will gradually ease,” said the central bank, which attributed the increase in borrowing costs to a rapid increase in lending, cash demand during a holiday earlier this month and changes in foreign-exchange markets.