Chinese banks are 'thirsty' for cash 3
Interbank interest rates in the world’s number two economy have skyrocketed since the beginning of the month.
Earlier this week, the Agricultural Development Bank of China reduced the size of its bond offering by a third.
The lack of liquidity has forced banks to ask the central bank for help to pump more money into the market by reducing the required reserve ratio (RRR).
Chinese banks are short of large amounts of cash.
Some analysts, such as Xu Gao at Everbright Securities Company, predict that the PBOC will take easing measures in the next few weeks.
The bank’s cash shortage came at a time when Chinese officials were fighting a credit bubble due to the huge stimulus package in 2009. According to analysts, these two things are related.
Chinese Prime Minister Li Keqiang once hinted that Beijing is hesitant to change its monetary and fiscal policy stance to combat economic decline, but still must achieve sustainable growth.
Economic experts analyze the sudden decrease in foreign investment capital, due to China increasing control of speculative cash flows and slowing economic development, as one of the main causes of cash shortages.
So far, PBOC still seems to want to maintain a tightening monetary stance, rather than providing liquidity support to banks.
An article in China’s version of the Financial Times, a newspaper sponsored by the PBOC, denied the possibility of a liquidity crisis in China’s currency markets.
Yesterday (June 18), PBOC sold 2 billion yuan of 91-day T-bills to withdraw the equivalent amount from the currency market.
Last week, PBOC also injected 92 billion yuan into the market, quite small compared to the needs of banks.
Wang Tao, economist at UBS bank said: `From last week’s moves, we think that PBOC has clearly determined that too fast credit growth is not appropriate. If banks let this happen
