China’s central bank has announced an emergency injection of liquidity into financial markets to avert a short-term credit crunch.
The People’s Bank of China has been progressively tightening financial conditions over recent months to rein in excessive lending growth in the economy, and had cancelled its usual daily “open market operations” – which push money into the markets – in recent days.
But as a result, interbank lending rates – a key measure of market stress – had shot up, raising fears of a crunch.
Echoing similar measures it took in June, the People’s Bank of China took the unusual step of announcing, via Weibo, the Chinese equivalent of Twitter, that it had carried out a short-term liquidity operation, or SLO. Trading was also extended by an extra half an hour, to allow banks to benefit from the measure.
No details were published about the scale of the SLO, or which banks had been involved; but the liquidity injection evoked memories of the crisis measures taken by central banks in Europe and the US in the wake of the collapse of Lehman Brothers, as markets threatened to dry up.