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Goldman On China: 'Sufficient' Liquidity But Tightening Bias To Stay

Tyler Durden's picture


The People's Bank of China (PBOC) released an official statement addressing directly the latest liquidity conditions in the banking system and indicating that the central bank intends to maintain sufficient liquidity conditions in the interbank market. As Goldman notes, this clear communication of policy intentions is highly important to guide market expectations, avoid liquidity hoarding, and contain excessive volatility of market. While they hope this calms markets in coming days, Goldman notes that the interbank rates are likely to settle back to a level higher than before to rein in leverage growth. However, in a helpful prompt for more jawboning, the squid notes, continued communications on policy intentions and actions will be helpful to further ease market uncertainties, given the extreme volatility in recent weeks; though we note the tightening bias will remain as the new leadership appears to prefer to take their pain early (and blame previous parties) than wait.


Via Goldman Sachs:

The key messages from the PBOC:

1.      Plenty of system-wide liquidity. The PBOC revealed that as of end of May, the excess reserves ratio was 1.7% (which implies around Rmb1.7 trillion in terms of the absolute amount. There can be some imprecisions as not all deposits are subject to required reserve). As of June 21, there was still Rmb1.5 trillion in excess reserves (the PBOC didn't give an excess reserve ratio. Using the deposit data at the end of May this would imply a ratio of around 1.5%). Therefore, commercial banks as a whole have sufficient funds to lend to the non-banking sector. While the excess reserves are often unevenly distributed among different banks (thus individual banks can still feel tight even with system wide excess reserves), this is welcoming news as this suggests that there is no major shortage of fund supply as a whole.

2.      The high interbank rate reflects demand and seasonal factors: Such factors include the high loan demand, seasonal factors such as tax payment and the Duanwu holiday, liquidity needs from reserve submission, and a reduction in FX inflows. Thus according to the central bank, the very high interest rates recently have been partly driven by temporary factors (i.e. they are unusual). We review below the recent development in more details.

3.      The central bank is still the lender of the last resort: According to the statement the PBOC has been providing liquidity support to institutions that are deemed to have managed liquidity prudently. The quantity and price of such support remains unknown. Together with regular interbank borrowing, the interbank rate has become more stable, according to the PBOC. The central bank will continue to use a combination of different liquidity tools including open market operations (OMO), relending, SLO and SLF to maintain stability in the money market.

4.      Commercial banks should be prudent on liquidity management: Commercial banks should improve liquidity forecast and reduce maturity mismatch. Large banks need to play a role in stabilizing the market.


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Wed, 06/26/2013 - 22:03 | Link to Comment LetThemEatRand
LetThemEatRand's picture

So it must be really bad over there.

Wed, 06/26/2013 - 22:37 | Link to Comment knukles
knukles's picture

or, Yeah, yeah , yeah , yeah , yeah

Wed, 06/26/2013 - 23:05 | Link to Comment markmotive
markmotive's picture

Are they contradicting themselves?

Fakin' the Funk

Thu, 06/27/2013 - 01:18 | Link to Comment Richard Chesler
Richard Chesler's picture

Goldman says there's plenty o liquidity.


Thu, 06/27/2013 - 02:20 | Link to Comment Handful of Dust
Handful of Dust's picture

"No one saw this coming."

Thu, 06/27/2013 - 07:09 | Link to Comment GetZeeGold
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Rut row!

Thu, 06/27/2013 - 00:13 | Link to Comment infinity8
infinity8's picture


Wed, 06/26/2013 - 22:03 | Link to Comment Go Tribe
Go Tribe's picture

Clever image there Tyler.

Wed, 06/26/2013 - 22:08 | Link to Comment jonjon831983
jonjon831983's picture

Dontcha love how Goldman dumped all their shares in some Chinese bank recently?

Wed, 06/26/2013 - 22:10 | Link to Comment q99x2
q99x2's picture

No banks going to "should" a fucking thing. The PBOC better get to printing before ABE gets his printers back online.

Wed, 06/26/2013 - 22:14 | Link to Comment Dr. Engali
Dr. Engali's picture

" According to the statement the PBOC has been providing liquidity support to institutions that are deemed to have managed liquidity prudently."

So nobody then..... or actually just to the banks close to the power structure.

Wed, 06/26/2013 - 22:19 | Link to Comment disabledvet
disabledvet's picture

exactly. i think they meant to say "managed with propinquity." perhaps this is something Goldman itself can work on as well.

Wed, 06/26/2013 - 22:41 | Link to Comment knukles
knukles's picture

So lemme get this straight.
Officially, of course...

If they've managed their liquidity prudently, as in good and proper, reasonable, what-a-bunch-a-the smartest guys in the room.... then they need liquidity?

Agggach, my testes are painfully retracting into my torso.  My doctor says not to read idiotic governmental statements which cause this reaction.

Wed, 06/26/2013 - 22:17 | Link to Comment newengland
newengland's picture


Wed, 06/26/2013 - 22:25 | Link to Comment Pancho Villa
Pancho Villa's picture

Reading reports this morning (some on ZH) that Chinese banks are suspending lending. Doesn't sound like "sufficient liquidity" to me.

The PBoC seems to be "stress testing" the banks by actually applying stress. What a novel idea!

Wed, 06/26/2013 - 22:48 | Link to Comment chump666
chump666's picture

Who cares what Goldman says, they are a-grade dumb-ass sh*t heels, those cronies are fortunate to have the NY Fed and ECB on tap, with HFTs creating the illusion.

Japan/China tensions revving up again:

Should keep rates up and oil bid. 

Stay frosty people...


Wed, 06/26/2013 - 22:49 | Link to Comment JFKFC
JFKFC's picture

When Goldman revised its S&P EOY forecast to 1750 last month, I immediately went short. Covered last Thursday quite handsomely. Did the same thing on their "buy Japan."

I don't need to look at charts or pour through fundamentals any more. The only indicator I need now is the Goldman Contrarian. Works like a fucking charm.

Real quick. Someone might want to inform the Asians that US GDP is 70% consumer spending. Today's horrendous revision = less Americans buying Hyundais & Galaxy S4's, less baller Japanese techno swag & somebody tell China that Apple's 44% nose dive & Walmarts $3.6bn share repurchase in no way reflect their shit PMI #'s as of late.

Wed, 06/26/2013 - 22:51 | Link to Comment HowardBeale
HowardBeale's picture

So, in other words, another 50 basis points and the Squid is in trouble. Sell China.

Thu, 06/27/2013 - 08:39 | Link to Comment marathonman
marathonman's picture

We can only hope....

Wed, 06/26/2013 - 22:53 | Link to Comment HowardBeale
HowardBeale's picture

Been a long time since The Black Swan has appeared; I'm betting tomorrow we get a fly by...

Wed, 06/26/2013 - 22:56 | Link to Comment thismarketisrigged
thismarketisrigged's picture

of course futures are green on this.


unlike the past few nights where futures were red only to wake up and see them green, i fully expect to wake up the futures up 100 plus dow points on this bullshit.


things must be so good in china that banks are suspending lending,that is deff worth 50 s&p points.

Wed, 06/26/2013 - 22:57 | Link to Comment FreeMktFisherMN
FreeMktFisherMN's picture

crude oil is exposing this sham of a 'market.' Continues to move higher now mid 90s.

Wed, 06/26/2013 - 23:31 | Link to Comment Skateboarder
Skateboarder's picture

Today's futures are tomorrow's past.

Chinese Central will start to mirror ECB/Fed moves. Totally agree with one of the comments above with this being a stress test.

Wed, 06/26/2013 - 22:56 | Link to Comment Yen Cross
Yen Cross's picture

    I have an Island in the "Ring of Fire" with a dorment volcano, that I want to sell you.

Thu, 06/27/2013 - 00:07 | Link to Comment dunce
dunce's picture

Most of what they are promising is what was once called jawboning. The problem with that is after a while people begin to ignore same old story. when that happens they must come up with something else that has it's own problems and has been tried before.

Thu, 06/27/2013 - 00:37 | Link to Comment earleflorida
earleflorida's picture

'China's New Leader Xi Jinping?'

Is Mr. Jinping stuck between a rock and a hard place or are his (cronies, nepotist)'guanxi' inner circle up for the crossroad of a perilous safe passage...'of their lives'? One left-turn laden'd with quick sand regarding shadow-banking, and the righteous right that make Mao Zedong look like a piker post`revolution!?!?  

Xi has to cut some heads-off, or light-up the firing-squad if he is to be respected seriously to maintain/ carry the people's trust? He must strike fast, and act quickly abandoning his ambiguous and questionable western swooning ways that Mao distained-- long before establishing communist-commercial shallow capitalism ways now undermining this grand-plan of a single-party Socialist State under a Marxism-Leninist political-ideological doctrine?    Ref: "Everything you need to know about China's new leader Xi Jinping"

China's wealthy and connected are making a mockery of China's generational progress that was supposedly the progenitor for Chairman Mao's revolution!? Everyone was to share but like all ideologies they quickly gravitate to the top echelon where its at now... and this is a turning/ flash point for 'division and bellicose acrimony' in a society that's not benefiting from a Faux`Trickle-Down Reaganesque de`Communistcrac[Z]y!!!


Thu, 06/27/2013 - 15:19 | Link to Comment ebworthen
ebworthen's picture

The PBOC is just front-running the FED.

Thu, 06/27/2013 - 01:18 | Link to Comment put_peter
put_peter's picture

Gold crash explained:

I thinkg what has been going on in China is the following: There are institutions who have accumulated large positions of gold futures using freely available cheap credit (or what used to be cheap). Now the lack of physical gold and selling of paper commitments have lead to the situation which has been discussed here in ZH many times - there simply is not physical backup for the gold. Now these gold position holders decided to put pressure to the derivatives sellers which in many cases might have been CB:s or other big banks and DEMANDED PHYSICAL DELIVERY. This of course is not possible and somebody needed to act. So these 'speculator' needed to be taken down and that is what is happening and they were pushed to margin liquidation. Problem solved...

Thu, 06/27/2013 - 01:31 | Link to Comment HaroldWang
HaroldWang's picture

So as with every other "crisis du jour" - much ado about nothing. When will everyone understand the system has always run this way, it's just bigger now. Rinse and repeat. Nothing changes. Powerful in charge, little guy suffers. Been this way since mankind was created. Just different instruments now rather than mammoth husks.

Thu, 06/27/2013 - 02:24 | Link to Comment Handful of Dust
Handful of Dust's picture

I'd hate to be a small fry business man there. No clout, no RMB. Only local Gubmint politicans will continue to eat those sumptious Peking Duck dinners with Plum Wine.

Thu, 06/27/2013 - 03:35 | Link to Comment SimMaker
SimMaker's picture

But, enough about the USA...what about China? :)

Thu, 06/27/2013 - 02:29 | Link to Comment e-recep
e-recep's picture

This just in, EU agreed to bail-in depositors to rescue failing banks. Cyprus WAS indeed the fucking trial balloon. Winter is coming.


"The European Union has struck a deal on rules establishing who will pay for future bank bailouts without taxpayers having to foot the bill."

"Bail-in is now the rule," Ireland's finance minister, Michael Noonan, said. The rules put an end to moral hazard by making it clear that banks would suffer before the government might come in to help, if at all, he said. "This is a revolutionary change in the way banks are treated."

"The rules foresee that banks' creditors and shareholders would be the first to take losses. But if that were not enough to prop up the lender, small companies and ordinary savers holding uninsured deposits worth more than 100,000 euros (£85,000) would also take a hit, officials said."


Thu, 06/27/2013 - 02:51 | Link to Comment Skateboarder
Skateboarder's picture

Don't worry, no one has 100K anyway.

So... what are the "hah, Cyprus got raped cuz all those Russian mafia stashin their cash all up in there" people gonna say now? Did the Russian mafia invade all of Europe and stash their cash in every failing bank? That must be the answer, especially if TV tells me that.

Oh, did we say 8%? After some lengthy talks, we've decided a nominal 40% to be the right number. For the greater good, dawg.

Thu, 06/27/2013 - 03:56 | Link to Comment jubber
jubber's picture

HK futures did fall 250 points from the overnight ramp although they have recovered a little

Thu, 06/27/2013 - 05:03 | Link to Comment Cian
Cian's picture

Goldman on China: Muppets Desperately Sought to Buy GS Book

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