21 Jan 2014
Flash: PBoC injects liquidity to restore confidence - Nomura
FXstreet.com (Bali) - As Nomura Economist Zhiwei Zhang reports, the People's Bank of China (PBoC) introduced a pilot short-term lending facility (SLF) on 20 January to meet liquidity demand for four types of financial institutions (including city commercial banks, rural commercial banks, rural cooperative banks and rural credit unions) in 10 provinces and cities (i.e. Beijing, Jiangsu, Shandong, Guangdong, Hebei, Shanxi, Zhejiang, Jilin, Henan, and Shenzhen).
Key Quotes
"The eligible collateral securities cover government bonds, central bank bills, financial bonds of policy banks and "corporate bonds with high credit ratings", without specifying what ratings are regarded as high."
"The terms will be overnight, seven-day and 14-day. Also, according to Reuters (not confirmed by the authorities), the size of the pilot SLF is up to RMB120bn (USD19.8bn). According to Reuters, the conditions to utilize the facility are that the overnight, 7d and 14d repo rate exceeds 5%, 7%, or 8%, respectively. The 7d repo rate closed at 6.60% today, but reached as high as 8.9% during intraday trading."
"In addition, on Sina weibo (Chinese-style Twitter), the PBoC disclosed that it provided liquidity to large commercial banks via the SLF today, and will also inject liquidity via a reverse repo operation on 21 January to stabilise interbank liquidity conditions before Chinese New Year."
"We think these are significant steps by the PBoC. We believe these announcements suggest that the central bank is very concerned about potential liquidity risk in the interbank market leading into the Lunar New Year holiday period, as well as the financial risks in small banks."
"The recent news of potential trust default and the fact that the Shanghai stock market index dropped below 2000 on 20 January suggest market confidence is weak, which may also have put pressure on the government to take action and restore confidence."
"These measures should help to reduce the liquidity risk in the interbank market and the default risk in the corporate sector over the next several weeks. It also helps to reduce the default risk of small banks. But we do not think the monetary policy stance has turned toward loosening, because the current GDP growth rate (Q4 at 7.7% y-o-y) is still acceptable to the government."
"We think the government will continue to contain credit growth in Q1 and tighten regulations on shadow banking after the Lunar New Year, and defaults in the corporate and shadow banking sector are likely to rise. We continue to expect growth to drop to 7.5% by Q1 and 7.1% by Q2, and the monetary policy stance to be eased in mid-2014."
Key Quotes
"The eligible collateral securities cover government bonds, central bank bills, financial bonds of policy banks and "corporate bonds with high credit ratings", without specifying what ratings are regarded as high."
"The terms will be overnight, seven-day and 14-day. Also, according to Reuters (not confirmed by the authorities), the size of the pilot SLF is up to RMB120bn (USD19.8bn). According to Reuters, the conditions to utilize the facility are that the overnight, 7d and 14d repo rate exceeds 5%, 7%, or 8%, respectively. The 7d repo rate closed at 6.60% today, but reached as high as 8.9% during intraday trading."
"In addition, on Sina weibo (Chinese-style Twitter), the PBoC disclosed that it provided liquidity to large commercial banks via the SLF today, and will also inject liquidity via a reverse repo operation on 21 January to stabilise interbank liquidity conditions before Chinese New Year."
"We think these are significant steps by the PBoC. We believe these announcements suggest that the central bank is very concerned about potential liquidity risk in the interbank market leading into the Lunar New Year holiday period, as well as the financial risks in small banks."
"The recent news of potential trust default and the fact that the Shanghai stock market index dropped below 2000 on 20 January suggest market confidence is weak, which may also have put pressure on the government to take action and restore confidence."
"These measures should help to reduce the liquidity risk in the interbank market and the default risk in the corporate sector over the next several weeks. It also helps to reduce the default risk of small banks. But we do not think the monetary policy stance has turned toward loosening, because the current GDP growth rate (Q4 at 7.7% y-o-y) is still acceptable to the government."
"We think the government will continue to contain credit growth in Q1 and tighten regulations on shadow banking after the Lunar New Year, and defaults in the corporate and shadow banking sector are likely to rise. We continue to expect growth to drop to 7.5% by Q1 and 7.1% by Q2, and the monetary policy stance to be eased in mid-2014."