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PBOC Scrambles To Reliquify Chinese Interbank Market, Injects CNY 300 Billion Of Liquidity

Tyler Durden's picture




 

Last Friday we pointed out that Chinese 7-Day SHIBOR had hit a fresh all time high just days after pundits thought that the year end liquidity shortage was temporary and things would be back to normal. This morning it appears that the PBoC is scrambling to restore some form of liquidity in suddenly frozen interbank market, especially with the traditionally liquidity draining Chinese new year coming up, as the central bank is said to have injected CNY300 billion of liquidity via reverse repos. To those who are concerned that the PBoC is playing an increasingly more volatile game, with liquidity either in big excess or completely absent, and with a very limited arsenal of measures, you are not alone.

Market News has more:

The People's Bank of China injected around CNY300 billion in liquidity into the interbank market via reverse bond repurchase agreements Monday, traders said, as lenders struggle for funds in the face of cash demands before next week's Chinese New Year holiday.

The repos were of 16- and 21-day durations, they said.

The looming week-long lunar New Year holiday is leading to a short-term shortage of liquidity as depositor demands for funds rise for travel and entertainment purposes.

Three traders confirmed the reverse repos, though the number and name of participating banks were not immediately known.

The first reserve requirement increase of the year went into effect last week, removing nearly CNY400 billion in interbank liquidity. Moreover, the books on a string of initial public stock offerings open this week, acting as another drain on funds.

The PBOC suspended biweekly sales of sterilization paper last week as part of its move to raise market liquidity.

The suspension resulted in a net injection of CNY249 billion into the interbank system last week, excluding the reverse repo.

Those confused how the interplay between RRR hikes and reverse repo actions operates, please read our primer on this seemingly contradictory activity here: On The Paradox Of Concurrent Chinese RRR Hikes And OMO Liquidity Injections

 

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Mon, 01/24/2011 - 08:34 | 898334 Sudden Debt
Sudden Debt's picture

The looming week-long lunar New Year holiday is leading to a short-term shortage of liquidity as depositor demands for funds rise for travel and entertainment purposes.

 

Yeah... train tickets are expensive so it's logic that banks run out of liquidity if 50% of the population buys a train ticket for that week.

And when those chinese go on a buying spree and buy things like Crickets on a stick for their entertainment, one doesn't need to wonder why the systems starts to run dry...

 

Mon, 01/24/2011 - 08:41 | 898342 eigenvalue
eigenvalue's picture

Methinks a rate hike is coming this weekend or early next week.

Mon, 01/24/2011 - 09:35 | 898368 Quinvarius
Quinvarius's picture

I think you mean a rate lower, don't you?  It is obvious they went too far.

Mon, 01/24/2011 - 09:49 | 898423 eigenvalue
eigenvalue's picture

The interbank interest rates in China are set by the supply and demand. However, the interest rates on savings deposits and loans to the corporates are set by the PBoC. So there are actually two systems of interest rates in China. 

Mon, 01/24/2011 - 10:21 | 898487 Quinvarius
Quinvarius's picture

And it is clear they need to lower rates and reserve ratios to restore liquidity to the part of the banking system that has rates sets by supply and demand.  Liquidity is liquidity.  I said it when they tghtened the last two times.  Their velocity of money was already rolling over.  They never should have started on their end of last year campaign to tighten.  Their economy cannot handle it.  They need to loosen policy while letting the dollar fall. 

Mon, 01/24/2011 - 08:49 | 898345 satansanus
satansanus's picture

sell pops of fxi/hao for a while perhaps?

Mon, 01/24/2011 - 08:58 | 898358 Oh regional Indian
Oh regional Indian's picture

Reliquify. Liquidity. Very interesting words we use in finance.
Because I look around and in this fractal, self-reflective world, we've not done too well with our water resources, have we?
River were dam(n)ed and today the Nile, The Ganga, The Euphrates, The Yangtze are all dirty, toxic sewers. All the great rivers are. And Civilization grew on river-banks. Every one of them.
And then, we did it to the ocean. If bottom-fishing were not a telling enough syndrome of the hungry human, along comes the DeepWater Horizon.

Maybe something to think about.

Our inner liquidity is a sewer too, toxic cocktail...

And you cannot re-liquify the ocean or the great rivers...

ORI

http://aadivaahan.wordpress.com/2011/01/21/accidental-lives/

Mon, 01/24/2011 - 09:00 | 898361 Thomas
Thomas's picture

OMG-Now even the Chinese, the last bastion of free enterprise, are turning to state capitalism.

Mon, 01/24/2011 - 11:10 | 898628 topcallingtroll
topcallingtroll's picture

buwahaha.  JPM kill china now.  China stupid and buy high sell low.  They don't even know how to repo properly, or if they do they aren't showing it.  Ham fisted financial planners make Timmah and the Bernank look good in comparison.  Keep doing china with that big QE strap on BEN.  Don't stop until they promise to float.

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