PBOC Will Use Tools to Stabilize Money Markets

Issuing its second statement in two days, the People’s Bank of China said it would offer liquidity to banks to ease investors’ fears of a cash crunch. The People’s Bank of China has provided liquidity to some financial institutions (though did not specify the amount or the banks) to stabilize money-market rates and will use short-term liquidity operations and standing lending-facility tools to ensure steady markets.

 

“If institutions have problems in managing their liquidity, the central bank will apply appropriate measures under the circumstances to maintain the overall stability of money markets”

 

In its statement, the central bank said money markets were already on the mend after interbank rates rose to double digits last week. It noted that the overnight bond repurchase rate had fallen to 5.83%. It also reiterated its view that a series of temporary technical factors, including tax collection and end-of-quarter regulatory deposit requirements, had exacerbated the market’s tightness.

 

“With the elimination of seasonal and emotional factors, interest-rate fluctuations and the tight liquidity situation will gradually ease”

 

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 stood in sharp contrast to one issued the day before in which the PBoC took a much harder line, declaring that liquidity was at a “reasonable level” and telling lenders to manage their balance sheets.