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20 Jun 2013
Flash: What makes China's cash crunch noteworthy this time? - BBH
FXstreet.com (Barcelona) - China's central bank continues to keep the money market rates at lofty levels, and as Marc Chandler, Global Head of Currency Strategy at BBH, notes, rather than inject liquidity, the PBOC drained CNY2 bln yesterday.
Furthermore, Chandler adds: "CNY30 bln 10-year bond offering saw its lowest bid-cover ratio in a year yesterday, with the 7-day repo rate, which is an indicator of interbank liquidity rose 144 bp to 8.26%, which is the highest rate since in two years."
What make this cash crunches in China especially "is that officials are tightening the proverbial screws tighter and longer than participants are accustomed, thus the tightness cannot be simply attributed to last week's holiday" Chandler said.
Chandler believes that "some near-term reprieve from the central bank is expected soon to prevent a deeper panic, with reports suggest that PBOC has asked local banks to submit orders for 14-day reverse repo agreements earlier on Wednesday."
While this measures may offer some relieve to the banking system, "it also asked banks to submit orders for a 28-day repos, which would ensure that liquidity remains tight for longer" Chandler comments.
In conclusion, Chandler thinks that the PBOC is driving home an important point: "That point is that there has been an overly rapid expansion of credit from the banks that it will not accommodate, thus wants banks to scale bank on the credit expansion plans and manage their own liquidity better."
Furthermore, Chandler adds: "CNY30 bln 10-year bond offering saw its lowest bid-cover ratio in a year yesterday, with the 7-day repo rate, which is an indicator of interbank liquidity rose 144 bp to 8.26%, which is the highest rate since in two years."
What make this cash crunches in China especially "is that officials are tightening the proverbial screws tighter and longer than participants are accustomed, thus the tightness cannot be simply attributed to last week's holiday" Chandler said.
Chandler believes that "some near-term reprieve from the central bank is expected soon to prevent a deeper panic, with reports suggest that PBOC has asked local banks to submit orders for 14-day reverse repo agreements earlier on Wednesday."
While this measures may offer some relieve to the banking system, "it also asked banks to submit orders for a 28-day repos, which would ensure that liquidity remains tight for longer" Chandler comments.
In conclusion, Chandler thinks that the PBOC is driving home an important point: "That point is that there has been an overly rapid expansion of credit from the banks that it will not accommodate, thus wants banks to scale bank on the credit expansion plans and manage their own liquidity better."