Cash Crunch Hits China As SHIBOR, WMP and Discounted Bill Rates Jump; PBOC Is Boxed In

Interest rates are moving up across the board now (SHIBOR, WMPs, deposit rates...) and 21st Century Business Herald asks, is the PBOC going to pour liquidity into the market or cut the reserve ratio? Unstated is the expectation that something has to be done. (21st CBH infographic at bottom.)

The charts are as follows: SHIBOR, discount rate in Yangtze River Delta region, WMP interest rates, central bank repos, and central bank interventions (repos in orange, liquidity injections in purple and blue). It shows the PBOC stopped repos in November.

China experienced a serious cash crunch in June 2013 and the situation has only grown worse in terms of the economic fundamentals. The central bank stepped in at prior quarter ends to avoid a repeat of the cash crunch, but rising bad loans and tighter credit in the economy only make the conditions tougher on the banks.

Chinese coverage here: 年底钱紧央行降准预期加大 银行间拆放利率飙升 (cleaned up Google Translated portions below)
Banks are short of money at year-end again.

...calls grow louder for the central bank to add liquidity or drop reserve ratios

...In fact, the negative factors facing the financial side of this week's performance in several ways. First, the start of the 18th batch of the seventh IPO subscription amount is expected to freeze the funds or continue record year peak . According to Guotai Junan estimates, including Guoxin Securities , the mineral resources of 12 new shares is expected to issue 1.56 billion shares IPO is expected to freeze the funds over 2.2 trillion, the largest in history. Secondly, the recent depreciation of the RMB spot exchange rate to accelerate, or increase outflows, November new foreign exchange malaise. The central bank data show November financial institutions foreign exchange increased by only 2.2 billion yuan, down sharply from October's increase of 66.1 billion yuan.
The last point is typical of every significant yuan depreciation in the past 5 years: dollars dry up fast. The yuan is now down to 6.22 versus the USD in HK.

The PBOC is boxed in because it can't ease monetary policy with capital flowing out of the banking system and into the stock market, or overseas. A move to cut rates will boost the stock market and depreciate the yuan.
"Based on the current exchange rate to fall, the stock market fiery and hot money outflows, the central bank will not easily use an open, substantial liquidity tool. But with the gradual increase in financial pressure, the greater the probability of reverse repurchase and adjust the deposit reserve ratio. " Haitong Securities analyst told Economic Herald reporters that the introduction of a limited scale, temporary and targeted delivery tools, such as expectations continued to do more to determine the MLF.

English coverage: China money rates rise sharply as mini-crunch anniversary approaches
China's money rates surged Thursday afternoon, with the weighted average for the benchmark seven-day repo contract quoted at up to 8.5 percent, the highest level since January.

The rise follows another week of relative passivity by the People's Bank of China in the interbank market, where the bank neither drained nor injected funds. It has sat on the sidelines during biweekly open market operations for seven straight sessions.

21st CBH infographic: 年末流动性再趋紧 央行公开市场放量or全面降准?

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