Bloomberg - - China boosted its injection of short term cash into the financial system in a sign the authorities are seeking to soothe market nerves frayed by concerns over quarter-end funding needs and China Evergrande Group s debt crisis.
The People's Bank of China (PRBC) on Friday injected 90 billion dollar yuan $14 billion of funds via seven-day and 14-day reverse loans, the most since February. Today is the first time that an authority has added a substantial number of billion yuan of short-term liquidity to the banking system in one day.
The operation comes as the crisis facing Evergrande fuels concern over the health of the nation s real estate and credit markets. Adding to the stress is a seasonal spike in demand for cash as banks become less willing to lend toward quarter-end as they prepare for regulatory checks. Liquidity tends to diminish at this time of year in the run-up to a one week holiday at the start of October.
The absolute priority for the PBOC is to avoid systemic liquidity squeeze and has means to do so, Societe Generale SA economists led by Wei Yao wrote in a research note. A Lehman-like financial-market meltdown is not our top concern, but an extended economic slowdown seems more probable. Concern about Evergrande comes at a time when the economy of China is already slowing. Aggressive movement controls in place to curb Covid - 19 outbreaks have hurt retail spending and travel, while measures to cool property prices have also taken their toll. On Wednesday, the country reported a slowdown in retail sales in August, together with weaker growth in industrial production and fixed-asset investment.
The PBOC is seeking to strike a balance between stimulate the economy and making sure its cash injections don t result in asset bubbles. Since July, the PBOC has refrained from pumping in additional medium-term liquidity into the financial system as policy loans come due.
On Friday the central bank injected 50 billion yuan via its seven day reverse repos and another 50 billion yuan through 14 day contracts, which haven't been used since February. Some 10 billion-euro was due Friday.
It s fair to say that the Evergrande situation and its effects on the broader property market will have a far greater direct impact on Chinese growth than any other regulatory crackdowns said Alvin Tan, head of Asia foreign exchange strategy at Royal Bank of Canada in Hong Kong. If the PBOC was responding quickly to stop corruption in the financial markets, it would not have surprised me that the PBOC is acting to control the fallout of the fallout? The uncertainty over Evergrande is prompting China watchers to game out possible worst-case scenarios as they contemplate how much pain the Communist Party is willing to tolerate. Pressure to intervene is increasing as signs of financial contagion increase.
However, the PBOC s operations have yet to lower capital-market rates. The seven-day repo rate, an indicator for interbank borrowing costs, rose 12 basis points on Friday to 2.39%, the highest level since July.
The PBOC again proves to the market that it will be supportive, but only if there is a need, said Frances Cheung, a rate strategist at Oversea-Chinese Banking Corp in Singapore.