Hey there! The coming holidays and work have kept me quite busy, but i couldn’t resist making note of this! For the 8th day in a row, the Shanghai Composite continued on a downward spiral, losing 1 per cent. Investors are raising concerns about China’s monetary issues. Financial stocks weakened as the central bank opted not to provide additional liquidity despite one-year interest rate swaps, which are based on the 7-day repo rate, at one point hitting 5 per cent, a record high by Reuters reckoning.
The People’s Bank of China then moved to make an “emergency injection” in the form of a conducted a “short-term liquidity operation” to provide credit to banks in need of money.
According to Simon Rabinovitch in Shanghai, writing on ft.com ::: Earlier in the day Chinese money market rates had soared to levels last seen in late June when the country was hit by a liquidity squeeze that alarmed investors around the world about the potential for a financial crisis in China. The seven-day bond repurchase rate, an important gauge of short-term liquidity, rose to nearly 10 per cent as banks hoarded cash.
Along with the emergency injection, the central bank on Thursday also extended trading in the country’s interbank market by 30 minutes to give financial institutions additional time to line up funds. The central bank last allowed an extended trading session during the June cash crunch.
“It’s very clear they want to calm down market fears,” said Zhou Hao, an analyst with ANZ in Shanghai. “The PBoC does not want to see the cash crunch repeated again.”
Yet the immediate cause for the sudden panic gripping the market was the central bank itself. Over five consecutive trading sessions, it had refrained from injecting cash in the financial system through its regular open-market operations.