China’s central bank, unlike other central banks, is constantly active almost never resting. Because it is always in motion, the PBOC can seem to be “adding” liquidity at the very same time it might be “draining” it. Its specific actions should never be interpreted as standalone procedures related solely to some unknown policy stance. That is particularly true given that we know what their stance is and has been – neutral. That means all these individual transactions are designed to either add RMB or at times take it away so that the monetary conditions in China are neither loose nor tight according to whatever internal guidelines (which we are not now, nor I expect we ever will be, privy to).
But conditions in China’s money markets seem to be the latter despite a great deal of effort for it not to be that way. And so we are graced with interpretation about China that often at the same time describes money markets as being tight because the PBOC wants it that way even though it injects often hundreds of billion of RMB at a time.
Repo rates as well as unsecured interbank rates have skyrocketed again in the past few days, this time to the highest levels since before “global turmoil” first erupted. For this Bloomberg reports today on rumors of missed interbank refis in the repo market.
China’s central bank injected hundreds of billions of yuan into the financial system after some smaller lenders failed to make debt payments in the interbank market, according to people familiar with the matter…
China’s smaller lenders faced tighter liquidity this week as benchmark money market rates climbed to the highest level since April 2015, reflecting a mix of technical factors including cash hoarding for quarter-end regulatory checks. By letting borrowing costs rise, the People’s Bank of China may have been sending a warning to over-leveraged lenders, according to Banco Bilbao Vizcaya Argentaria SA. The central bank has been known to allow short-term jumps in money market rates to discourage excessive borrowing.
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