A strain in Chinese bank liquidity, visualised. The one-month China repo rate below:
And in historical context:
There seems to be a myriad of possible reasons for this. We’ve heard of a liquidity squeeze caused by AgBank’s IPO, and a more general funding squeeze as more Chinese banks prepare to raise capital.
There’s also speculation that some banks plan to cut down on lending and just invest in central bank bills — a novel approach to the People’s Bank of China’s concern that banks need to raise more capital.
Whatever it is though, it’s coming in the context of the fifth-week of liquidity provision by the PBoC. China’s central bank injected about $30bn net into the money market this week.
Clearly that doesn’t buy you a lot right now.
Related links:
China’s locals on a locally-generated crisis - FT Alphaville
The Chinese SIV – FT Alphaville
Are Chinese banks massaging their losses? – FT Alphaville