Sat, Dec 21, 2013 - Page 15 News List

Chinese cash injection fails to soothe markets


A rise in China’s interbank interest rates yesterday showed that markets remain uneasy despite a cash injection by the central bank, dealers said.

Chinese shares closed down 2.02 percent yesterday. The benchmark Shanghai Composite Index fell 43.00 points to 2,084.79, with traders growing concerned about a lack of liquidity in the market.

The rates, which serve as the funding costs for pricing and investment, have been trending higher in recent weeks as the People’s Bank of China (PBOC) had recently refrained from injecting further liquidity before Thursday’s move.

Yesterday, the seven-day repurchase rate — a benchmark for interbank borrowing costs — rose to 7.75 percent from Thursday’s close at 7.06 percent, Dow Jones Newswires reported.

That came despite the PBOC announcing before market close that it had “appropriately injected” an unspecified amount of cash into the market.

The measure followed a spike in the seven-day rate to 9.8 percent earlier in the day, the highest since a cash crunch in June that unnerved global markets.

Before Thursday’s intervention, the central bank had for the past two weeks suspended a routine move to release liquidity — owing to fears about a growth of bad debt that could weigh on the economy.

However, that sent jitters across the market, with big banks scrambling to increase their cash reserves, as they struggled to meet regulatory requirements on capital by year’s end, sending up interest rates that lenders charge to lend to each other, analysts said.

This prompted the central bank to step in on Thursday by conducting short-term liquidity operations (SLOs) to inject cash.

“If necessary ... [authorities] will continue to provide liquidity support to qualified financial institutions via SLO,” it said on its account on the microblogging site Sina Weibo.

Analysts said the move showed that the central bank intended to soothe market fears about a recurrence of the liquidity crunch in June, which sparked worries over China’s slowing economic growth as lenders cut loans to companies.

“The PBOC learned the lesson in June and it will surely avoiding playing with fire again,” Lu Ting (陸挺) and Zhi Xiaojia, Bank of America Merrill Lynch’s economists in Hong Kong, said in a research note.

ANZ economists Liu Ligang (劉利剛) and Zhou Hao (周浩) called for further measures to lower the market interest rate and restore confidence.

“We believe the central bank’s intervention is necessary and timely,” they said in a note.

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