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Thread: China interbank rates surge again despite cash injection

  1. #1
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    Default China interbank rates surge again despite cash injection

    http://www.channelnewsasia.com/news/...medium=twitter

    BEIJING: China's interbank interest rates surged again on Monday despite hefty cash injections last week by the central bank, suggesting money market stress remains as authorities maintain a prudent stance.The seven-day repurchase-agreement rate -- a benchmark for interbank borrowing costs -- rose to 9.8 per cent, the highest since it hit 11.62 per cent on June 20 at the peak of China's summer cash crunch that unnerved global markets, according to Dow Jones Newswires.
    "The spike in interbank rate indicates that the lack of market confidence has worsened the liquidity crunch," Wendy Chen, a Shanghai-based economist at Nomura Securities, told AFP.
    The rates, which serve as funding costs for pricing and investment, have been trending higher recently as the People's Bank of China (PBoC) had refrained from injecting further liquidity through a routine open market operation for two weeks.
    In a gesture to calm the market, the PBoC announced Friday that it had injected more than 300 billion yuan ($49.4 billion) into the financial system over a three-day period via the so-called short-term liquidity operations (SLOs).
    "Currently the banking system has excess reserves of over 1.5 trillion yuan, a relatively high level compared with the same periods in history," it said on its verified account on China's Twitter-like Sina Weibo.
    The announcement followed a similar statement on Thursday that the bank had "appropriately injected" an unspecified amount of cash into the market through SLOs.
    The interbank market responded with brief signs of improving funding conditions earlier Monday. The repo rate began the day's trading at 5.57 per cent, down from Friday's 8.2 per cent, before rebounding.
    "More credit and further measures from the PBoC are probably required, to let the market regain its confidence, before the rate can become stabilised," Chen said.
    Chinese shares edged up Monday, with the benchmark Shanghai Composite Index ending up 0.24 per cent at 2,089.71. But analysts warned that the gains will soon evaporate without fresh funds flowing into the stock market.
    The state-run Securities Times newspaper on Monday quoted analysts as saying that the central bank intended to signal to the market its "neutral but slightly tight" policy stance by keeping suspended its routine, more aggressive liquidity-releasing tools and appeasing the market only with SLOs.
    The SLOs are discreet, targeted exercises confined to a select group of 12 banks that are deemed crucial to the overall stability of China's financial system. They are a new tool the PBoC introduced in January.

  2. #2
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    Default

    Quote Originally Posted by princess_morbucks View Post
    http://www.channelnewsasia.com/news/...medium=twitter

    BEIJING: China's interbank interest rates surged again on Monday despite hefty cash injections last week by the central bank, suggesting money market stress remains as authorities maintain a prudent stance.The seven-day repurchase-agreement rate -- a benchmark for interbank borrowing costs -- rose to 9.8 per cent, the highest since it hit 11.62 per cent on June 20 at the peak of China's summer cash crunch that unnerved global markets, according to Dow Jones Newswires.
    "The spike in interbank rate indicates that the lack of market confidence has worsened the liquidity crunch," Wendy Chen, a Shanghai-based economist at Nomura Securities, told AFP.
    The rates, which serve as funding costs for pricing and investment, have been trending higher recently as the People's Bank of China (PBoC) had refrained from injecting further liquidity through a routine open market operation for two weeks.
    In a gesture to calm the market, the PBoC announced Friday that it had injected more than 300 billion yuan ($49.4 billion) into the financial system over a three-day period via the so-called short-term liquidity operations (SLOs).
    "Currently the banking system has excess reserves of over 1.5 trillion yuan, a relatively high level compared with the same periods in history," it said on its verified account on China's Twitter-like Sina Weibo.
    The announcement followed a similar statement on Thursday that the bank had "appropriately injected" an unspecified amount of cash into the market through SLOs.
    The interbank market responded with brief signs of improving funding conditions earlier Monday. The repo rate began the day's trading at 5.57 per cent, down from Friday's 8.2 per cent, before rebounding.
    "More credit and further measures from the PBoC are probably required, to let the market regain its confidence, before the rate can become stabilised," Chen said.
    Chinese shares edged up Monday, with the benchmark Shanghai Composite Index ending up 0.24 per cent at 2,089.71. But analysts warned that the gains will soon evaporate without fresh funds flowing into the stock market.
    The state-run Securities Times newspaper on Monday quoted analysts as saying that the central bank intended to signal to the market its "neutral but slightly tight" policy stance by keeping suspended its routine, more aggressive liquidity-releasing tools and appeasing the market only with SLOs.
    The SLOs are discreet, targeted exercises confined to a select group of 12 banks that are deemed crucial to the overall stability of China's financial system. They are a new tool the PBoC introduced in January.

    will this be the start of perfect storm? increase liquidity and yet interest rates continue to rise.........

  3. #3
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    Default The Biggest Financial Story In The World Is Playing Out Right now in China

    http://www.businessinsider.com/patri...-rates-2013-12

    Chinese interest rates have been spiking again. After a back credit crunch in June, we saw the seven-day funding rate, a measure of funding, surge to 8.94% on Monday, though at one point this went up to 10%.
    This was the highest level since it hit 9.29% during the run up in rates in June.
    But these aren't isolated incidents. We're seeing increased credit risk as defaults are rising, and bond yields are surging across the board.
    Patrick Chovanec, chief strategist at Silvercrest Asset Management, told Business Insider in a telephone interview, that China's financial system has "high blood pressure." He said China's interbank lending market is "a petri dish of risk," and that this is the most important financial story this holiday season.
    Here are some key points from our interview with Chovanec:
    • The underlying issue is China's credit fueled expansion and that any moves to impose discipline lead to a run up in money market rates and risk provoking a crisis.
    • The roots of the run up in rates this time around are the same as those that precipitated the credit crunch in June.
    • The reserve requirement ratio, or the cash reserves that the Chinese central bank mandates banks need, has become a real constraint for banks. And the shadow banking system makes it more complex, because it allows banks to overextend themselves but these liabilities don't show up on balance sheets.
    • We should expect more instances of rising money market rates going forward. But it isn't limited to this. We've seen government and corporate bond yields go up in the past several months. So this isn't a fluke regarding the interbank lending market.
    • The interbank lending market is "a petri dish of risk," and China's financial system has become fragile and tangled up.
    • The investment led growth model has made it so it's almost like the PBoC has ceded control of monetary policy to the shadow banks.
    • The People's Bank of China is faced with a difficult choice, accommodate the banks or risk them going bust.
    • The rise in Chinese money market rates, not the Fed taper, is the biggest financial story of the holiday season.

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