China Authorities Flooded Cash into System to Soothe Market Rout

Chinese authorities Tuesday flooded the banking system with the largest cash injection since September, likely helping soothe equity markets a day after a stock rout that rocked global financial markets.

The People’s Bank of China (PBOC) injected 130 billion yuan ($19.95 billion) during its open market operations. A Dow Jones report Tuesday noted that the move followed a PBOC decision Monday to not renew a credit line of the same amount to policy bank China Development Bank, a move which may have spurred investor worries that the central bank might tighten policy.

“Around this time of year, the PBOC does typically do large repo injections just for seasonal reasons,” noted Julian Evans-Pritchard, a China economist at Capital Economics, citing an increase in demand for cash for the Lunar New Year holiday period. “That said, it seems a bit early to do that now given Chinese New Year is still a few weeks away. There might be an element of easing liquidity conditions a bit following the stock market fall yesterday.”
In Monday’s trading session, Chinese equities plunged after feeble manufacturing surveys revived concerns over the country’s economic slowdown. The CSI300 index dipped 7 percent in afternoon trade Monday, resulting in trade being suspended for the day. The Shanghai Composite had tumbled 6.8 percent and the Shenzhen Composite plummeted 8.1 percent Monday.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza