On June 25th, the People's Bank of China finally took a more active stance towards the extreme liquidity crunch that had engulfed the Chinese banking sector in recent days. The bank said it had provided liquidity to some financial institutions and would use short-term liquidity operations and standing lending-facility tools to ensure steady markets.
Extract from the PBOC Communique
“If financial institutions have problems in managing their liquidity, the central bank will apply appropriate measures to maintain the overall stability of money markets.
In order to maintain smooth operation of the money market, the central bank has recently provided liquidity support to some financial institutions. Several strong banks have already started to play an important role in providing funds to the market and stabilizing interest rates. As a result, on June 25th, overnight repo rate has declined to 5.83 percent, falling 592 basis points from June 20th. It is expected that interest rate volatility and tight liquidity situation will gradually ease.
Commercial banks should continue to strengthen liquidity and asset-liability management. They should correctly estimate liquidity situation, respond calmly to fluctuations in liquidity, avoid irrational behavior and maintain daily liquidity at reasonable level. “
6/25/2013 3:27:58 PM